Tighter liquidity conditions last year stimulated an increased use of traditional trade finance products such as letters of credit (L/Cs) to help manage working capital and mitigate risk according to global co-head of trade finance and lending at Deutsche Bank, Atul Jain.

In his analysis of the key features that shaped the 2022 trade finance landscape, Jain says the year was marked by the Russia-Ukraine crisis, huge market turbulence, concerns about energy and critical commodities shortages, and topped off by rampant inflation. He suggests it might surprise some that global trade grew as well as it did.

Risk mitigation

"We observed the establishment of new supplier relationships and value chain diversification, leading to further demand on risk mitigation by using both working capital (selling receivables) and traditional trade (request for L/Cs-guarantees)", he says in a response to the bank winning 14 accolades in the Euromoney 2023 Trade Finance Survey.

In addition, Jain says the trend observed in 2021 where mindsets changed from 'just in time' to 'just in case' inventory has continued to ramp up the demand for working capital finance.

"The main concerns are now funding needs, onshoring-offshoring decisions, and organisational set-ups in terms of vertical integration," he says.

Normalising supply chains

Supply chains, he adds, have continued to normalise over recent months, supported by slowing demand and China's progressive reopening after Covid lockdowns.

But Jain concludes that a tougher interest rates environment is still affecting investment decisions as well as credit worthiness of counterparties in global trade.

Jain's analysis, Deutsche Bank underlines its Global Hausbank role in year of economic turbulence with 14 winning accolades in the Euromoney 2023 Trade Finance Survey, can be found here.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.