Transaction banking: the bid to upgrade

Following a recent roundtable event hosted by BNY Mellon in Istanbul, CIHAT TAKUNYACI, the firm’s treasury services representative for Turkey, discusses transaction banking in the Turkish market.

Turkey’s strategic geographic position between europe and the Middle east has sparked (continuing) growth in Turkish-Middle eastern trade flows. however, do Turkey’s local banks have what it takes, in terms of local transaction banking services and products, to keep up with the pace, and if not, what are their options?

To answer, let us start at the beginning. Cross-border transaction banking arrived in Turkey 5-7 years ago following a surge of local–international bank mergers. as a result of this, the majority of local banks are able to offer cash management and trade finance capabilities and, to a certain degree, integrated cash and trade services.

This integration has come as a natural result of the evolution of trade flows and expansion of the corporate treasury’s role, and has had some positive results, such as increased transaction processing and enhanced risk-mitigation. however there remains – in reflection of Turkey’s turbulent financial history – some discrepancy between the individual levels of sophistication of cash and trade services, with cash tending to lead the way.

Bora ermikli, assistant general manager, finance, BrIsa (Bridgestone sabanci Tyre Manufacturing & Trading Inc.) concedes that cash management has always tended to dominate.

“In Turkey, we are accustomed to dealing with crisis periods, so we learned the importance of the saying ‘cash is king’ long before the global financial crisis hit,” he said, speaking at the roundtable event. “Because of this, we really are ahead in terms of domestic cash management services.”

Commercial concerns

 As commendable as this may be, the concerns of local commerce have changed, and the imbalance between local cash management and trade finance provisions must be redressed if local banks are to rise to the market’s current challenges.

The renewed Turkish focus on trade finance, rather than cash management, is very much a sign of the times. The final quarter of
2008 was a particularly challenging time for Turkey, and local corporates feel that this signalled a change in the established local/global dynamic that had heralded such advances in the transaction banking sector.

For instance, Baris Oran, chief financial officer of international cord fabric producer Kordsa Global, says that many of the global banks retreated following the crisis. “after the global credit crisis, many of what we call the global banks disappeared
from the local market,” he said. “They have all but vanished, and their service provision has decreased dramatically.”

This is of particular concern in a market in which mid-sized domestic corporates are increasingly operating on an international
level. The chief concerns of Turkish corporates – at a time when international names are retrenching – are global reach, global understanding and the ability to ensure that cash can be used effectively and efficiently worldwide, despite trade and/or tax restrictions.

As a result, Turkish corporates require more from their transaction banking solutions. risk-mitigation, access to credit lines,
global-standard processing systems and international reach constitute some of the current corporate demands, which – crucially – they want met at local level.

Of course, this has increased the pressure on local banks, which are typically the local corporates’ first port of call in times of difficulty. Local bank attempts to address these concerns – as well as the efficiency gaps created by the historical focus on cash management at the expense of trade finance – have manifested themselves in increased collaboration between banks and corporates, as well as a corporate- driven trend for enhanced treasury service integration at local level.

However, this has turned out to be something of a double-edged sword. Mehmet Tugal, corporate branch manager at akbank, concedes that as well as increasing efficiency, which has aided the expansion of corporate business, this integration has also exposed the voids in the transaction banking process that local banks alone are unable to fill.

Middle East ‘gap’

“More and more of our customers are going business in the Middle East, but our knowledge of those markets is limited,” he said. “Consequently, our risk-appetite is restricted.

Collaboration with international banks could be a potential solution to this problem.” Collaboration could, indeed, result in local corporates having the best of both worlds, by combining domestic knowledge, understanding and presence with global-standard knowledge and technology. But collaboration in which format?

If  local banks are to maintain and develop their corporate relationships, as well as remain relevant to international trade, any form of local–international bank collaboration must favour the local element. Local banks need the ability and agility to provide their corporate clients with an international-standard processing service and dispense global knowledge in their home markets, and this is what a partnership with a global bank must provide.

This strong emphasis on the importance of local knowledge and understanding means that the more conventional partnership models, such as outsourcing, are unsuitable for today’s corporate and market needs.

While  outsourcing successfully provides local banks with access to globalstandard processing capabilities, such systems rarely cater for specific market concerns. Indeed outsourcing frequently shoehorns local banks into a system designed for multinationals, leaving them with little or no flexibility to compete in their domestic markets (especially the case if the insourcing bank also operates in these markets) or address real and evolving local concerns.

Furthermore, as important as technology may be to advances in transaction banking, it is, in this case, only half the battle won.

More dynamism

In order to meet the demands of the market, local banks now need a more solutions-driven, rather than productdriven approach
to collaboration, which puts as much emphasis on market knowledge (local and international) as it does on banking platforms. In light of this, a local–global bank partnership based on what BNY Mellon is calling the “manufacturer- distributor”
model could be the answer.

This model is predicated on the concept of banks being either “manufacturers” of transaction banking services and products, or “distributors” of such services and products to their local client base. “Manufacturers” are global, specialist transaction banking providers. “Distributors”, for their part, are those banks that operate on a regional basis, and, therefore, have a round knowledge and understanding of their domestic market and strong ties with the local corporates.

Certainly, the benefits of this approach stem from its focus on the individual core strengths and capabilities of both local and
global banks. Local banks have the client relationships, local expertise and risk management capabilities, while international banks are better positioned to provide the global reach and infrastructure. Local bankers believe that this will result in local dynamism, understanding and commitment, tied into a global range and standard of working capital technology with international reach. In short, exactly the sort of leverage they need to keep pace with the demands of their corporate clients.

“Looking to the future from a local bank perspective, collaboration of this nature could allow local banks to capture global flows,”
said Eylem Ekmekci, head of trade finance at YapiKredi. “They could also retain and expand existing business, as well as penetrate previously inaccessible corporates.” Corporates, for their part, also stand to benefit. Enhanced local bank service provision will give them a much wider base from which to access transaction banking solutions and services, as well as smooth entry to previously uncharted international markets.