American banking giant Citibank has urged cash-rich corporations and financial institutions to consider using their excess liquidity to help small and medium enterprises (SME) through trade financing.
Ravi Saxena, Citi managing director and trade head for global transaction services in Asia-Pacific and Japan, said that its customers are beginning to understand that while they have a war chest of cash and access to credit, their suppliers do not.
“That’s a potential issue,” Saxena said, especially during an economic downturn.
Saxena added that there is an increasing trend of large multinational companies helping their suppliers and tapping banks’ expertise in domestic trade financing.
Mylene Arnaldo Caparas, Citi managing director and head for global transaction services in the Philippines, said that through trade financing, larger corporations could help suppliers who do not enjoy the same credit rating and access to finance, opening up a new avenue of financing for both the buyer and supplier.
“For example, we have this multinational client. What we do is on the day its payables become due, we pay its suppliers on its behalf so this allows the multinational (company) to basically lengthen payment terms at the same time allow the suppliers to avail [themselves] of financing at interest rates which are much lower than what they can actually draw on their own,” Caparas said.
Interest in such a facility is growing, Caparas said, as more corporations realize they can boost sales and improve their balance sheet.
Apart from domestic trade financing, Saxena said excess liquidity—especially for banks—could also be harnessed to boost profitability.