StanChart, DBS to roll out system to ease trade finance

Standard Chartered is working with DBS Groupon developing distributed ledger technology for trade finance in Singapore, in a bid to make such transactions simpler and more transparent.

The banks have successfully tested the technology with each other, and will invite other companies into the system next year, representatives of both banks said on a call yesterday.

Estimates of development costs are not available yet, they said.

In pursuing the technology that underpins cryptocurrencies, including bitcoin, Standard Chartered and DBS are developing a new approach that could improve the trade finance business by speeding up banking transactions, while cutting costs and boosting transparency.

This is the world's first application of distributed ledgers in trade finance, the banks said in an e- mailed statement also released yesterday.

In pursuing the technology that underpins cryptocurrencies, including bitcoin, Standard Chartered and DBS are developing a new approach that could improve the trade finance business by speeding up banking transactions, while cutting costs and boosting transparency.

"This could revolutionise and transform trade operations, enhancing risk mitigation and creating more efficient processes for both corporates and banks," DBS' global head of client management and implementation Lum Yin Fong said in a press release.

Banks are seeking ways to bolster trade-finance operations in Asia that have been hobbled by slowing economic growth in the region and slumping commodity prices. Since reaching a peak of about US$145 billion (S$205 billion) in June last year, the value of trade loans provided by banks in Singapore and Hong Kong has tumbled 38 per cent due to the slowing Chinese economy and a slump in commodity prices, central bank data shows.

Standard Chartered ranked second after HSBC Holdings in terms of its market share in arranging trade finance for large Asian companies, according to a survey by the Stamford, Connecticut-based research firm Greenwich Associates published on Sept 16. DBS ranked fifth, according to the survey.

Risks in the Asian trade-finance business were evident last year when London-based Standard Chartered took a US$193 million write-off against its exposure to a metals warehouse fraud in China, which also hit Citigroup and Standard Bank Group.

The incident involved a Chinese company pledging the same metal stockpiles to banks several times for loans.

At the moment, trade-finance transactions take place bilaterally between a borrower and a bank. With distributed ledger technology, each transaction is recorded and shared among participants of the system, said Mr Shirish Wadivkar, head of payables, receivables and flow FX at Standard Chartered. Once recorded, the transaction cannot be erased from the system, he said.

The Infocomm Development Authority of Singapore and the Monetary Authority of Singapore were involved in the project, which may be extended to the rest of Asia.

"We'd also like it to be used across the region as well, because it's only then that you are able to mitigate the risk in duplicate transactions," said Ms Lum.

Meanwhile, in a separate development, Standard Chartered hired HSBC Holdings' Simon Cooper, 48, to run its investment bank.

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A version of this article appeared in the print edition of The Straits Times on December 18, 2015, with the headline 'StanChart, DBS to roll out system to ease trade finance'. Print Edition | Subscribe