By David Berse
The 2023 banking crisis has put a spotlight on how banks, particularly Regional Banks, are managing their balance sheets. Many of which are seeking to shore up capital in advance of new regulations that may require higher capital reserves than previously held.
This focus extends to lending, where many banks are reviewing their credit commitments, increasing hurdle rates and seeking where they prune and cut credit lines. Trade Finance is particularly affected as many Supply Chain Finance and AR Purchasing programs are uncommitted. The uncommitted nature of the lines makes them “easy” to cut, but there could be major and far reaching relationship ramifications to any change in credit to a Corporate client.
Now is the time to take a more focused and granular approach to portfolio reporting to ensure you have the right tools to track and manage risk across your programs.
Real-time Risk Assessment
Risk assessment helps identify areas where a company may be vulnerable to risk, determine a company’s attitudes towards risk, reinforce its strengths, and ensure it’s able to take advantage of valuable opportunities. Such a tool may complement the risk analysis from the credit department, or tailor the analysis to nuances specifically found in Trade Finance.
With its live dashboard, LiquidX’s TradeHub gives banks real-time insight into program performance, allowing them to make more informed risk decisions and spot early warning indicators. And with TradeHub, banks gain this visibility into the credit quality of their programs on an aggregate basis. When a bank has several lines across several programs, comprehensive reporting of their current exposure on a program and aggregate basis allows them to better manage their credit lines as a whole.
In addition to a real-time dashboard, banks can draw reports on demand. Reporting showing critical information such as transaction analysis, pricing, utilization, aging and dilutions provides a complete picture without the strain on manual resources having to pull it all together. Reporting can be filtered by program, obligor or portfolio. It can also be used to supplement downstream systems of record––a loan management system, OFAC reporting, P&L reporting, etc.––either through direct API connections, SFTP or extracting from the portal. Through TradeHub, banks are given one source for reporting to cover all their programs and get a comprehensive view of everything.
Invoice Screening to Determine Risk Upfront
Invoice screening is another form of proactive risk assessment. When a bank receives an offer, LiquidX can set up filters to determine whether that offer meets their criteria. Banks can examine the buyer, supplier, internal risk rating, jurisdiction, currency, invoice amounts and limits to determine whether the transaction should be funded. They can set limits based on insurance or credit within TradeHub that will screen invoices to ensure they are not in danger of breaching their limits. By automating this layer of screening, banks can cut down on operational costs and manual errors.
Forecasting to Help Scale the Business
Forecasting helps businesses predict future trends, identify potential risks and develop strategies to achieve their financial goals. TradeHub’s 360-degree view of aggregated data includes: historical lookbacks, comparisons and advanced analytics, projections and/or insights such as projected limit utilization based on repayment trends.
A look at seasonality in different businesses and industries can help banks modify the size of a line or assign limits to a program during a certain time of year based on the history of that utilization.
Automating the Standardization of Data
Many banks are pursuing a multi-channel strategy of purchasing from Agent Banks via participations, and funding programs via fintech platforms. Funding sources are only expected to increase as lending standards tighten and banks cast a wider net for new sources of eligible assets. However, the more asset sources, the more challenging the process becomes to track and manage the portfolio. Invoice files are often in inconsistent formats, requiring manual effort to aggregate and manage fundings and maturities. As banks attempt to manage their books, they require excessive operational overhead to evaluate new offers, track cash flow and reconcile invoices.
LiquidX systematically ingests, normalizes and consolidates data from all your sources into a single, centralized platform. The results are a clear view of aggregated data and a higher level of reporting that shows the most minute details of transactions via TradeHub. The bank can use this data to automate the distribution of assets via LiquidX as an alternative to terminating or exiting a credit line. By automating and offering all critical trade information in one central place, TradeHub creates more transparency and efficiency for all participants. With greater transparency on the lending side, banks can more easily identify and mitigate risks, setting themselves up for greater growth. To learn more about LiquidX’s industry-leading TradeHub software, contact us at [email protected] or request a demo.