Enticed by the country’s deep harbour and sophisticated port, BMO has been mulling an investment to build out its capabilities in the Southeast Asian hub for at least four years.EDGAR SU/Reuters
Global trade winds may be blustery, but that hasn't stopped Bank of Montreal from dropping anchor in Singapore to pursue new business.
With its deep harbour and sophisticated port, Singapore is the gateway to a rich corridor for worldwide trade, and BMO has been mulling an investment to build out its capabilities in the Southeast Asian hub for at least four years. But it was only in the past year that the plan turned serious.
Offices such as the one BMO has been building in Singapore serve as a gateway to introduce new clients to the rest of the bank. Its global trade division already "supports" a dime of every dollar of revenue generated by its capital markets arm, and that contribution has increased in recent years, Jeffrey Shell, managing director and co-head of global trade and banking at BMO, said in an interview.
But financing trade has never been an easy way to make a buck.
Around the world, many banks have retrenched from trade finance, fretting about high costs, fraud risks and uncertainty surrounding key deals. The value of global trade has been in sharp decline for more than two years even as trade volumes keep rising – a historical rarity driven by sagging commodity prices and a changing Chinese economy. And difficult negotiations over the future of the North American free-trade agreement and Brexit have only increased tensions, hampering trade flows.
Even so, BMO is paddling against the protectionist tide. Having a full-scale office in Singapore gives the bank greater access to a cluster of nine Southeast Asian countries from Thailand to Indonesia that are collectively home to more than 600 million people.
"Canadian and U.S. companies care more about that market and are using that as a footprint for procurement, for assembly and producing goods that are consumed by other emerging and developed economies," Mr. Shell said. "It's a really important part of the future world."
BMO's key locations outside North America are in Hong Kong and mainland China, London and now Singapore. About half of the bank's 100-plus customer-facing staff in global trade and banking are located outside Canada, and it has teams in Latin America, Europe and the Middle East. BMO's new chief executive officer, Darryl White, declared in a recent interview that "we're the largest trade bank in Canada" – a claim that is neither easily verified nor obviously contested.
In Singapore, BMO bulked up its staff with credit specialists and compliance officers and added the ability to locally process the stacks of documents that still make trade work. New capabilities are now coming online, giving BMO the ability to finance imports and supply chains for companies doing business in emerging markets.
In theory, there's ample opportunity in trade. According to the Asian Development Bank, a $1.5-trillion trade gap is keeping small and medium-sized businesses from getting the financing they need to trade and move into new markets, as many banks choose to lower their risks.
Yet there are good reasons why some banks have pulled back: Trade is both costly and risky to finance, especially as much of the new growth is happening among smaller companies in emerging markets.
The mechanics of trade are antiquated, manual and mostly still paper-based: On average, HSBC processes $1-million (U.S.) of trade each minute, and burns through 100 million pieces of paper a year.
It's also difficult to screen goods and cash changing hands across jurisdictions – through trucks, ports and customs bureaus – for money laundering, terrorist financing and sanctions violations. The cost of a major fraud slipping through a bank's controls can include hefty fines and severe reputational damage.
BMO copes with those risks by "overinvesting" to beef up compliance controls, Mr. Shell said. The bank hires staff with local expertise in offshore offices to forge close relationships with clients. And it has joined a pair of pilot projects experimenting with smart contracts that could execute trade faster and more safely using distributed ledger technology.
But BMO has also reviewed its trade relationships, cutting ties where the bank couldn't make an economic case for taking the risks. "Being a 200-year-old bank, that isn't something we play games with," Mr. Shell said.
"Because we have people in-market, they don't just know these people over the phone or just look at their data over Bloomberg; they know these people," he added. "Our compliance people know their compliance people."
Other Canadian banks have taken differing approaches to trade finance. TD Securities Inc., an arm of Toronto-Dominion Bank with a fifth of its global transaction banking staff in offshore offices reaching from London to Hong Kong and Singapore, has made a specialty of facilitating large, long-term trade finance transactions guaranteed by sovereign export agencies. For example, TD arranged and agreed to underwrite a series of 12-year, U.S.-backed loans that allowed Air Canada to buy its first seven Boeing 787 Dreamliner aircraft.
National Bank of Canada has a sales force of about 25 international trade managers spread across Canada who are tasked with supporting commercial clients wherever they do business, but its trade footprint outside the country is limited.
Bank of Nova Scotia and Canadian Imperial Bank of Commerce declined to comment. Royal Bank of Canada executives were not available for an interview.
For BMO, trade is a calling card to connect with new clients and introduce them to other parts of the bank – starting with payments and foreign exchange, through to asset management and other business lines.
"The most international interface at BMO is global trade and banking," Mr. Shell said. "Trade is a conduit for us to do a whole lot more."