April 29 Value Prop Presentation

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(No Transcript)
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Letter of Credit Volume Trends in ASIA
Farhad Subjally American Express Bank Ltd. BAFT
Phoenix, AZ April 2006
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Letter of Credit Volume Trends in ASIA

• Hypothesis
• Asia increasingly dominant in LC flows
• India and China account for most growth
• Implications for Trade Finance Banks in the U.S.
• Client Product Line Profitability
• Customer Relevance

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Total MT 700 Volumes, excl Intra company (FY
2005)Who is Issuing LCs?
Source SWIFT Traffic Watch
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Total MT 700 Volumes, excl Intra company Trend
(FY 01 to FY 05)
Total SWIFT volumes increased 11 between
FY2001 and FY2005 MT700 sent by India doubled
while MT700 sent by China/HK increased by 28,
for the same period.
Source SWIFT Traffic Watch
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Total MT 700 Volumes excl Intra company (FY
2005)Where are these LCs going?
For FY 2003, MT700 volumes going to ASIA
comprised 69 of total.
Source SWIFT Traffic Watch
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MT 700 Volumes to ASIA excl Intra company (FY
2005)Who is sending LCs to Asia?
Source SWIFT Traffic Watch
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Total MT 700 Volumes to ASIA, excl Intra company
Trend (FY 03 to FY 05)
Total SWIFT volumes sent to ASIA increased by
1 from 2004 to 2005, and volumes sent by ASIAN
entities to ASIA increased by 2 .
Source SWIFT Traffic Watch
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CHINA and INDIA MT 700 Import LCs to Top 10
countries (FY 2005)Includes Intra company volumes
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ASIA Documentary Trade Trends

• Private Label/Re-Issuance
• By Hong Kong banks
• By companies
• Favoring HK/PRC bene or all Asia
• Asian LCs
• Confirmation needs diminishing
• Country risk more relevant for longer term LCs
• Operationally more demanding!
• Conditional LCs
• Issuing Banks more apt to find discrepancies
• Use of Open Account due to globalization
• Supply financial chain architectures
• Use of Standbys or guarantees

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Outbound LCs from China

• Do not allow open confirmations, therefore
  silent confirmations prevail
• A change discernible, some open confirmations
• Banks discounting accepted drafts
• Shift from sight to usance LCs
• UCP Recognition
• Effective Jan 2006, Supreme Peoples Court will
  try LC disputes according to prevailing UCP
• Previously, Chinas courts favored Chinese
  traders in LC disputes

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Outbound LCs from INDIA

• Typically, sight LCs or upto 180 days usance or
  deferred payment
• Confirmations typically required only for large
  items and/or longer dated tenors
• Indian importers want financing at relatively
  lower US rates versus local INR interest rates
  for large value LCs
• Many imports into India still require license -
  permits from RBI usually detailed in the ExIm
  policy which is revised every 5 years