As if your workload wasn’t already enough for your first week on the job. your manager approaches you with an urgent issue – the bank is facing a bit of a capital squeeze and needs to shift some nsk out of the trade finance portfolio. He asks you to come up with a proposal that will save TBL the capital it requires. The assets that you need to shift are as follows:
Obligor Instrument Amount Remaining tenor old Obligor Insbummit Amount Remainl ng tenor view Ghana Bank LC Refinanong 510m 210 days Utica • Zambia Miner Borroxtng Base Fealty 515m 360 days Libor • 4.50% 7.50% Uzbek Bank Acceptance under LC 53m 300 days Woe • Turkish Steel Promissory Note 51m 303 days Utica • 3.50% ComPany 3.50% Swiss Trader Prepayment facaty to Rwanda Farmer 512m 270 days Utica • 250% UK Supermarket Payables Finance Programme 525m 90 Oar average Utica • 4.00% European Oil Trade 8 Workbg 520m IS MOMS Libor • hicidoyan Wine Pre-erport Finance 55m 270 days Utica • Company Capital General 125% &paler FaCidy 5.5% Purposes UK PhafM3 Recebeablesiteckei 52m 90 days Libor • UK Bank Discounted Acceptance $3m 24 Ube • EXp011er pre-shipment finance 300% under Confirmed LC months 1.75%
Using a combination of capital relief nsk transfer tools. you will try to shift these assets.
Which alternatives do you have to shift the risk on these assets and obtain maximum capital relief? Compare and contrast the available options and their impact from a capital perspective.
What would be the mechanics to sell the assets to another bank? What document is used to achieve this and how does it work? What is the difference between funded and unfunded risk participation?
How is the credit insurance market working to alleviate banks’ capital positions? What would you highlight about TBL and the assets to potential credit insurance underwriters to entice them to cover the risks?
From the above assets. which are the prime candidates to share with the EBRD and the Afreximbank. and what mechanisms do these Multilateral Development Banks Offer to TBL to alleviate their capital position (some research may be required)?
Are there any emerging fintech companies out there that provide a marketplace for banks to distribute their assets as required by TBL in this example? Research about the ‘Trade Finance Distribution Initiative” and position your answer accordingly.
