The transaction banking business continues to grow at a sure and steady pace, even amid macroeconomic headwinds impacting international trade. Joy Macknight reports.

Despite alarming headlines around rising trade tensions, particularly the US-China dispute, and the related trend towards greater protectionism across the globe, the transaction banking business underpinning global trade continues to grow, according Coalition’s Transaction Banking Index for the first half of 2019. Both cash management and trade finance exhibited strong performances in the face of macroeconomic turbulence, leading to a 3% rise in revenues to $15.2bn.

Impressively, this is the third year in a row that transaction banking revenues have expanded. This is in stark contrast to the disappointing results seen over the same period in investment banking, which had its lowest results in more than a decade. As such, many banks are paying more attention to the transaction banking business than ever before and are now looking at revamping and expanding their transaction banking operations.

With a 9% growth in transaction banking revenues, Asia-Pacific outperformed the other regions, mainly due to sustained strength in cash management, according to Coalition. Europe, the Middle East and Africa saw a 1% growth in revenues as a result of improved trade finance results, although this was partly offset by weaker currencies. The Americas, following three years of growth, did not fare as well – which the report attributes to US rate cuts, but managed to keep revenues on par with 2018.

In terms of products, trade finance grew by a modest 1% to $2.9bn. The 4% improvement in revenue from structured trade finance products, such as supply chain finance, commodities trade finance and export or export credit agency finance, was offset by a marginal revenue decline (-1%) in traditional trade finance products such as letters of credit. According to Coalition: “Increases in nominal volumes for traditional trade finance were more than offset by compressed margins.”

Cash management up

On the cash management side of the business, total revenues grew by 3% to $12.3bn, due to higher liquidity management revenues and continued growth in global transaction volumes, according to Coalition.

The research firm divides cash management revenues into two categories. The first is liquidity and balances, which includes account maintenance, information reporting, overdrafts, pooling, sweeping, netting, operating balances, savings and investments. The second is payments and receivables, such as automated clearing house credit and debit, cheques, wire transfers, integrated payables service, outsourced payables service, cash, lockbox, direct debits, electronic receipts, virtual accounts, invoice solutions, currency clearing and mobile collections.

Liquidity and balances revenues increased by 4%, driven by higher deposit balances globally. Despite a weaker US market due to rate cuts, global net interest income continued to grow, driven primarily by the Asia-Pacific region, particularly in Greater China and south-east Asia. Payables and receivables revenues saw a modest 1% rise, as increased payment volumes were partly offset by lower fees.

Coalition’s transaction banking index tracks the revenue streams of the 10 largest transaction banks globally: Bank of America, Barclays, BNP Paribas, Citigroup, Deutsche Bank, HSBC, JPMorgan, Société Générale, Standard Chartered and Wells Fargo. Coalition’s sources include: public domain information, including financial disclosures, investor presentations and media articles; independent research; and ongoing validation by an extensive network of market participants.

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