Banque Saudi Fransi boosts trade finance through partnerships and deal-structuring

Governments are actively diversifying economies, nurturing emerging sectors such as technology, manufacturing, and renewable energy, and significantly impacting trade finance. This move towards economic diversification has found widespread acceptance in the global financial services industry. According to the Middle East and Africa Transaction Banking Survey 2023 conducted by TABInsights, key regional banks reported a 13% contraction in oil and gas financing and over 100% increase in financing for high-growth technology sectors.

Saudi Vision 2030 to reshape trade finance, robust players to reap benefits

Banque Saudi Fransi (BSF) aligned with Saudi Vision 2030 to actively contribute to economic diversification, focusing on emerging sectors and generating new trade opportunities. Ali Alkhamis, head of trade and supply chain at BSF, said: “Saudi is shifting from oil-reliant growth to non-oil sources, with a focus on strengthening existing markets and opening up new corridors for Saudi exports, which will result innumerous services that contribute to volume growth.”

Primarily, corporate and wholesale banks with strong trade and supply chain finance franchises, and expertise in managing international trade relationships, are poised to gain market share and customers.

BSF’s market share in Saudi Arabia for letters of credit (LCs) was 16% as at October 2023 (Source: Banque Saudi Fransi and SAMA reports). The bank’s trade business demonstrates robust growth, with the trade finance segment contributing noticeably towards the fee income of its wholesale banking business in 2023. The co-creation of win-win customer solutions incorporating a balanced mix of traditional and specialised products, underpinned by a highly skilled trade team, propelled the growth of businesses. BSF’s trade finance revenue grew by 8% year-on-year as at September 2023, while outstanding contingent volumes rose more than 15% in the same period (Source: Banque Saudi Fransi financial statements).

Alkhamis said: “Trade and supply chain finance not only brings fees but also foreign exchange, hedging opportunities, net interest income and ancillary services. There is a lot of indirect income from trade, including cash flows from margins, deposits and rebate on reimbursements, that enhances the overall contribution of trade.”

On mitigating the impact of rising costs of trade finance from higher interest rates, Alkhamis explained: “As the traditional financing rates are high at 6%, we have noticed that in order to counter the higher cost of funding, customers have increasingly used LC funding. This is another contributor to our traditional trade finance business that helped us, and will continue pushing growth for us in 2024.”

BSF predominantly serves corporates, but continues to deepen its relationships with small and medium-sized enterprises (SMEs), in line with Saudi Vision 2030’s emphasis on the role of small businesses in economic growth. The bank provides SMEs with tailored trade finance solutions, advisory services and support.

Alkhamis views SMEs as a growing area where the bank can expand services by providing low-cost financing based on anchor strength. He commented: “How did we get into this? We began by focusing on suppliers of large corporates, where we saw a huge gap in the market for SME lending. This also helps in maintaining resilient supply chains, enabling large corporates to continue building their supply chains.”

BSF achieved a notable milestone by introducing a discounting-without-recourse option for non-borrowing Saudi entities, thereby capturing the untapped SME segment.

Second-to-none trade structuring capabilities

While other trade financing banks shy away from dealing in countries with high risk exposures, BSF supports its customers’ offshore trade deals even in sub-par situations. In one instance, a commodity supplier was reluctant to deal with a high-risk African country and required payment on sight whereas the importer wanted deferred payment. In order to execute this transaction, BSF implemented a hybrid LC structure that allowed the supplier to receive prompt payment, and the buyer to receive goods on time, effectively resolving the situation.

According to Alkhamis, mandate structuring capabilities result from a combination of three factors: relationship-building, ability to structure and bring that structure to fruition, and delivering the service in a very short time. He commented: “We are aware that we are not the largest trade bank in Saudi Arabia—yet—but our customers say that BSF is one of the most agile and innovative banks in the Saudi market.”

As the deal was shared among large domestic and foreign banks in Saudi, how was BSF able to offer a differentiated service? Alkhamis said: “We were able to promptly implement our unique hybrid LC structure for this offshore transaction of the customer with the support of Saudi Exim.”

New partnerships and engagements drive BSF’s growth

Alkhamis stated: “We have a laser focus to grow and penetrate in the emerging markets in Asia, and expand our reach in other global financial institution markets by building relationships with new banks.” BSF’s strategic partnership approach includes collaborations with multilateral banks, export credit agencies, insurance, and other allied services. As a result, the bank significantly strengthened its presence both in the region and globally. He added: “We are also advising clients on exports to wide-ranging countries in Africa and Asia, even the ones in challenging economic climates.”

Alkhamis went on to discuss the bank’s digitalisation and future-proofing operations, saying: “Our digitalisation is based on utilisation that would help not only the bank but the community and country.” Banks in the region are applying fintech innovation to enhance trade finance capabilities, a direction observed as being large on the agenda.

Pointing out the marked difference in the speed of digitalisation between cash management and trade finance, Alkhamis described the use cases of digital transformation along the lines of front-end and back-end development, and planned introduction of artificial intelligence and machine learning technologies to enhance the processes and consequently improve customer experience. BSF recently partnered with a leading trade technology provider to automate services. He explained: “Today we have a huge front-end and back-end transformation going on within BSF. This will not only make transaction monitoring better but also help customers access off-balance sheet finance facilities.”

He concluded: “To have a competitive edge, we are not only relying on internal capabilities but also on the best-in-class technologies available, and building on top of it.”