OFFICIAL PUBLICATION OF THE ARIZONA BANKERS ASSOCIATION

Pub. 10 2020 Issue 4

By the end of 2021, banks should be fully prepared for LIBOR’s discontinuation. At this point, all new businesses should involve alternative rates or at the very least be capable of switching in a short amount of time. In cases where it was impossible to amend legacy contracts linked to LIBOR, the implications of the benchmark rate no longer being published should have already been discussed, with necessary steps being taken to prepare for this kind of outcome. By Dec. 31, 2021, the goal is for all market participants, financial and non-financial firms alike, to operate without relying on LIBOR. To meet this, the importance of a market-led transition will remain significant throughout this year. At the outset of LIBOR in 1986, no one could have predicted that over 30 years later, the rate would be discontinued and that a global pandemic would impact the transition. Just as 2020 was a significant year for the transition away from LIBOR, 2021 is equally, if not even more critical. If banks have not taken the necessary steps to address their potential LIBOR exposure for new and existing products, they must immediately put plans in place. The 1980s were indeed a different time compared to today. Just like computers with little storage space and phones as heavy as a sledgehammer, LIBOR is about to be an element left behind in the past. As we have adapted to technology changes, banks must also adapt to this change by properly preparing themselves and their customers.

What International Business Customers Want From Their Community Bank

While the coronavirus had originally affected international trade, it seems to be normalizing to an extent. It could be a good time for community banks to prepare to serve those customers with international trade business.

Firms that import or export goods want banks to understand their particular businesses, along with dedicated expertise in international trade. Proficiency in just one or the other may not be enough.

International presence in multiple markets. These companies will likely choose financial institutions that can facilitate international trade deals. This means unless an entrepreneur can choose a community bank with a direct presence in all international markets to which they intend to export their goods, a correspondent bank relationship is vital.

Full-service expertise. These same customers want holistic banking relationships. They want to rely on a single financial institution to fill as many of their needs as possible and reap the benefits of readily available international services tailored to their specific circumstances.

To start, importers will want their financial institutions to offer a variety of products and services designed to ease international trade. A community bank might add value to import/export transactions by matching purchase orders against invoices and settling the transaction between buyer and seller. The transaction can then be reviewed, and a receivables program can be used to offer financing.

International business clients also appreciate financing that helps them offer more aggressive terms and manage cash flow, especially in this competitive marketplace.

Faster international payments. Faster international payments are also vital these days. Being able to quickly make payments and receive funds is critical when businesses are tightly managing their cash flow. One recent innovation in faster payments is a global payments initiative from the Society for Worldwide Interbank Financial Telecommunications, called SWIFT gpi. SWIFT gpi allows you to send and receive funds fast and securely worldwide for your international customers, with full transparency. Forty percent of payments sent through the SWIFT gpi network are credited within five minutes.

Managing risk. Customers also benefit when their community banks work with counterparties to manage risk. The Export-Import Bank of the United States (EXIM) is a clear candidate, but it’s not the only choice. The U.S. Small Business Administration may provide export support on deals that EXIM declines to handle. Private-market insurance companies are sometimes willing to take positions in trade finance, as are non-governmental investors, such as insurance companies and pension funds.

As a correspondent bank, we can make it easy to support your customers with international services, including SWIFT gpi. If you would like to continue the discussion or need additional information, contact Jay Kenney. 

Jay Kenney is SVP & Southwest Regional Manager for PCBB.

pcbb.com |jkenney@pcbb.com

www.pcbb.ucom/utm_sorce=ABA(AZ)&utm_content=
Article-INTL-SVC-21

This story appears in Issue 4 2020 of The Arizona Banker Magazine.

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