FIMBank plans factoring joint ventures in Brazil and Kenya

28.03.2010

The Sunday Times, Malta - 28 March 2010

FIMBank, the international trade finance bank headquartered in Malta, is planning to open factoring joint ventures in Brazil and Kenya later this year or early 2011, president Margrith Lütschg-Emmenegger told The Sunday Times.

The joint ventures, for which partners and strategies have been identified, are expected to be operational in the first half of 2011. Factoring is a trade finance tool which allows companies to sell receivables to financial institutions to create cash flow and mitigate risks. The group, an emerging markets specialist, is also expected to enter Romania after signing a cooperation agreement with a local partner; the business is being booked in Malta initially. As the operation gains volume, the potential for an eventual joint venture in Romania will be examined.

Meanwhile, FIMBank’s factoring joint ventures in Russia and India are open as planned, but are pending registration, implementation of IT systems and engagement of operational staff. A full factoring licence for the Indian business is imminent and clients have already been lined up, Ms Lütschg-Emmenegger said. FIMBank holds a 49 per cent stake in India Factoring, the Mumbai-based company which is to carry out factoring, forfaiting and trade finance activities. Other shareholders include the country's second largest public sector bank Punjab National Bank, a leading Italian factoring bank, Banca IFIS, and Blend Financial Services Ltd. FactorRus is a joint venture of Transcapital Bank of Moscow (partly owned by the European Bank for Reconstruction and Development), and IFC, a member of the World Bank Group. Transcapital Bank has approx. 50 branches all over the country.

Ms Lütschg-Emmenegger said the establishment of the Indian and Russian joint ventures in late 2009 with such illustrious” partners was a huge achievement for the group, particularly during the “worst year for banking ever”. The briefs for both ventures are markedly different in terms of exploiting niches and opportunities. In Russia, the strategy is “extra careful”, while the Indian business is expected to adopt a more aggressive growth strategy. “Russia is still an environment with many risks and there are regulatory and legal issues,” Ms Lütschg-Emmenegger explained. “India is much more developed: there is a good legal system and we have tested the market very well in the past. For both entities, however, the target customers are small and medium-sized business. In Russia, we will most probably start with the larger ones, the larger supermarked chains like Carrefours and Debenhams, where the commercial credit risk is quite low and we will provide factoring to most of their suppliers. It is a typical approach in a relatively higher risk country. In India, customers will be the classical SMEs.”

In the latter country, Ms Lütschg-Emmenegger added that FIMBank has previous experience of this market through Global Trade Finance Limited, an institution in which it had a shareholding until 2008. In January of that year FIMBank sold its 38.5% interest in Global Trade Finance (GTF) for Rupees 2,168,100,000 to the State Bank of India. The sale was executed for a gross consideration of US$54.1mn, 3.3 times over the asset’s book value. Thanks to the Punjab National Bank’s 7,000-strong branch network, FIMBank is confident it will adequately be close to its target clients. The president said FIMBank was also looking at the potential of other markets within the promising Asian continent.

Ms Lütschg-Emmenegger has sought the support of the Maltese authorities in how to best approach the huge and complex Chinese market. Regulations are hindering foreign investment in the country, where local banks, like the Bank of China, offer a similar product to factoring but it is still not permitted to offer Factoring or Forfaiting through the ideal Joint Venture structure applied so successfully by FIMBank in other countries. Despite the challenges presented by the year which turned out to be catastrophic for numerous financial institutions, Fimbank still managed to report a $1.6 million post-tax profit for 2009 and registered better operational performance than the previous year. The hurdles, however, were several.

“There was no liquidity for at least nine months, risk was very difficult to look at – the opportunities were there but banks were looking to be safe and sound rather than be profitable. It is not really a typical banker’s philosophy,” Ms Lütschg-Emmenegger remarked. “It was almost impossible to boost business as risks were very difficult to judge. The emerging markets, our business’ focus, performed better, but of course risks were still very high.”

FIMBank has seen some improvement in trade in emerging markets, and growing confidence in Europe will feed newer markets. India, China, Brazil, and to a certain degree, Russia have not suffered as intensely and are showing growth – good news for international markets and for 2010. The first two months this year have already shown some signs of recovery for FIMBank. As a dollar-based bank, the euro crisis is a minor issue with a few advantages: a weaker single currency favours FIMBank as its cost is euro-based.

In the meantime, if all goes according to plan, FIMBank plans to tap the local and international capital markets in the future, possibly with certificates of deposits and shorter offerings. Ms Lütschg-Emmenegger celebrates seven years at FIMBank on Thursday. Among her diary entries for the next 36 months, is moving the Bank’s headquarters from Sliema to “The Exchange”, the new business & financial centre currently under development in St Julian’s. The new FIMBank head office building will be ready for occupation by June 2012.

 

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