Thursday, November 16, 2017

Wanted In Nigerian Banks: Certified Trade Professionals- Part 1

Banking is a very noble institution that take funds from people, places projects where it is excess supply and channel into people places and projects where funds are in short supply, thereby making the dreams of different people from various places handling different projects come to fruition. In carrying out this core function, one of the skill that is extremely critical for the bank's survival is risk management. A Bank that fails to develop the staff in the various units that manage its risk is sitting on the keg of gun powder, which will explode sooner or later. As a matter of fact, most Banks that has gone into the archives of history and no longer exist in our world today commence their decline into oblivion because of their recklessness in risk management.

In this article, my focus is going to be on Risks that are associated with international trade transactions. Trading generally in the local market has its inherent risks but when it comes to trading across borders, a layer of risk is added to the existing risk of local trading and this requires skills in relevant trade finance instruments to mitigate. Some of the common trade finance instruments being used in Nigeria and other parts of the world include Letter of Credit (LC), Bill for Collection (BC), Demand Guarantee (Guarantee) and Standby Letter of Credit (SBLC). Out of these instruments, the most prevalent ones in Nigeria are Letter of Credit and Bill for Collection. From these two instruments, only Letter of Credit is suitable for financing trade without the support of another trade instruments.

However, the recent global trade finance report of the International Chamber of Commerce (ICC) has revealed that the usage of Letter of Credit has been declining since after the global recession that plagued the last 2-3years of the last decade. The usage of this instrument went up a bit between 2012 and 2013, but it has been on a consistent decline since then. The usage was measured using the MT700 messages (The message type on SWIFT that is used for the issuance of Letter of Credit) sent out to different banks in the world via SWIFT (Society for World Wide Interbank Financial Telecommunications). There was a decline of 2.50% in 2014, a further decline of 3.76% in 2015 and finally a decline of 2.81% to an 8 year low in 2016. In all, the Letter of Credit usage has decreased by over 4.3 million from almost 48 million in 2013 to about 43.5 million in 2016. This has been attributed to a number of factors and the predominant of this is the delay in payment and clearing of the goods which results from the over 70% prevalent rate of documents discrepancies in Letter of Credit transactions all over the world.

This stunning statistics should drives a typical trade professionals anywhere in the world to begin to ask the questions, how then do we secure trade transactions in the world if the usage of Letter of Credit is decreasing at this rate? The answer to this question is Standby Letter of Credit and Demand Guarantees. The usage of these two trade finance instruments has been on the increase in the same period of decline in the usage Letter of Credit. This is because they can be easily combined with other payment methods like Open Account and Bill for Collection, which thus eliminate the delay of discrepancies that is often experienced in Letter of Credit transactions.

All these changes should therefore make a forward-looking trade professional and Bankers that structure trade finance to begin to position themselves for this new trend by acquisition relevant skill through various certifications. The case in Nigeria is however different despite the fact that a number of trade instruments (like Letter of Credit, Standby Letter of Credit and Demand Guarantees) are issued regularly, few Bankers in Nigeria understand these instruments and very few are certified trade finance professionals. As a matter of fact, the level of incompetence of Bankers in handling these instruments always very obvious whenever I request for it in any of our trade transactions. This actually results from them being ignorant of the rules like International Standby Practice (ISP98) and Uniform Rules for Demand Guarantee (URDG758).

There are two major global trade finance certification programmes that can help Bankers to sharpen their skills in the usage of these instruments. These include Certified Documentary Credit Specialist (CDCS) and Certified Specialist in Demand Guarantee (CSDG). Both of them aid better understanding of Standby Letter of Credit while the latter boost the skills of Trade Specialist in Demand Guarantee. However, it is very risky to note that despite the volume of the trade instruments being issued daily in the country and increase in the  usage of SBLC and Guarantee in particular, Nigeria only has 58 certified trade professional in LC and SBLC and just 11 certified trade professionals for Demand Guarantee. It is particularly more risky among the Tier 1 Banks who handles most of these transactions and have just 16 certified trade professionals. One of this top banks who used to have about five currently do not have any certified trade specialist in Letter of Credit probably because their bosses are not certified and thus feel threatened. This makes them to be taken out of the unit and deploy them to other departments like marketing and sales units.

To be contd next week

Bamidele Ayemibo

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