Deutsche GTB head sees growth in trade and FX businesses

Deutsche Bank continues to expand its cross-border payments business with another three Chinese financial institutions signing up for its products, while demand for supply chain financing remains strong.

China Merchants Bank and China Minsheng Bank have signed up for Deutsche's FX4Cash cross-border payments solution. The system will allow the banks to simplify their international payments through a specialised portal on Deutsche's db-direct website.

And in a mandate that combines both cross-border payments and trade finance, Deutsche has signed a memorandum of understanding with Agricultural Bank of China to facilitate trade and payment volume flows. Under the agreement, the Chinese bank will incorporate Deutsche's new money transfer technology to provide clients in Greater China with competitively priced, low-cost payments.

"We are pleased to take on the role of a facilitator to further support Agricultural Bank of China's growing trade opportunities within the Greater China region," said John Ball, Asia-Pacific regional head of cash management for financial institutions at Deutsche Bank.

While FX4Cash can process transactions in 125 currencies, it currently does not have renminbi capabilities. Ball says Deutsche is in the process of looking at how it will settle and remit transactions in the Chinese currency. The bank initially launched the service in July 2008, but enhanced it in May this year adding, among other things, mobile authorisation and more currencies.

Deutsche Bank claims to have gained significant market share in transaction banking over the past year. According to Ball, the bank now controls over 20% of all cross-border euro payments and about 10% of cross-border US dollar payments, up from about 17% and 6% year-on-year, respectively. These numbers and the fact that Deutsche has seen its trade finance revenues rise despite declines in global trade volumes, indicate to Ball and his colleagues at the bank that they have made gains.

Werner Steinmueller, global transaction banking (GTB) head at Deutsche Bank, discusses with FinanceAsia the bank's trade finance business and how he plans to grow the transaction business.

What is the split in Deutsche GTB between cash, trade and securities services?
The cash corporates, cash financial institutions, trade, and trust and securities services businesses each make up about 25% of the GTB business. I am very proud to have this diversified and balanced portfolio.

Before the crisis our trust and securities business was the fastest growing business but post crisis we see a strong increase in our trade finance business. In the past we saw shrinking trade volumes and declining demand for trade products because many corporates moved from letters of credit to clean payments. With the crisis, banks and corporates went back to more traditional risk mitigating instruments offered by our trade finance business.

Have you altered your business strategy to take advantage of this shift towards trade?
Given the economic conditions, trade volumes are not increasing so much but we have seen the margins widening. Now we are coming back to a more stable situation and I see a closer interlink between cash and trade in the fast-growing area of financial supply chain management.

How do you plan to grow Deutsche's transaction banking business?
We have a holistic growth agenda to accelerate GTB's growth with different strategies within the individual areas. Looking at cash management and trade, growth can be achieved organically -- this is what we want to do -- which means investment in products, but also in regions where we are not present. The regions we are focusing on are Central and Eastern Europe and we are also looking to extend our existing branch network in key markets, including China and India. Basically, we want better regional reach.

Additionally, we need to expand our customer base. On the corporate side we are dominated by multinational clients and large local corporates, but now, in all of our markets, we are expanding our large-cap and mid-cap names. Let's face it, we've had excellent growth in Asia but if you compare us with one of our competitors they have had excellent growth rates as well and have a much bigger footprint in SME [small- and medium-enterprises] and mid-cap businesses. I'm not saying we're going into the SME business but we're expanding our client base in Asia to accelerate our growth.

How are you looking to attract more middle market customers?
Let's take the Netherlands as an example. If we succeed to go into this market after the reorganisation of ABN AMRO we would be the only local bank with an international branch network and a big footprint locally. We would be able to sell our international network as we're already successfully doing in Germany. In general, we are looking to attract more middle market customers through the sophistication of our cash management and trade solutions.

We certainly have the local presence and expertise, and our products and services are equally relevant to middle market companies as they are to larger ones. Our technology platform for instance can bring cost and time saving benefits to middle market customers in the same way it can for larger customers, helping to solve their liquidity and working capital issues. Our deep correspondent banking network on the trade side is a differentiator as it gives us access to middle market customers and enables us to quickly confirm letters of credit and risk.

In Asia, Deutsche has doubled its GTB revenues since 2005. What are your plans for continuing to grow in the region?
In five years we want to double our revenues and profitability in Asia -- acquisitions are pretty unlikely though. What we want to do is to expand our branch network in India and China as well as other markets and to expand our client base into local large-cap and higher-end mid-cap corporates.

What kind of new products and services can we expect from Deutsche GTB?
Priority number one is to make our existing products better and better. We are at the front of Sepa [single euro payments area] in Europe and have invested €100 million ($146 million) in our interbank clearing system. Second, with regard to new products, Deutsche has developed an automatic and 100% straight through processing system for corporates and banks to make foreign exchange transactions in 125 currencies around the world, called FX4Cash. Another area of interest and one that is absolutely new is all the products and services surrounding mobile payments. Here we are developing a whole range of products but we don't know where the market is going yet and are looking at a lot of possibilities.

What do you see as the next big thing in transaction banking?
We are certainly seeing a lot of client demand for supply chain financing and I expect this to expand as open account trading gathers pace, bringing with it more and more possibilities to offer solutions to clients that serve their risk management, liquidity and working capital financing needs. Developments in information technology have encouraged a trend for a more transparent approach to cash and trade management. The IT platforms used are highly sophisticated, allowing trapped liquidity to be released through optimising existing processes. Electronic banking platforms, such as Deutsche Bank's db-direct internet, facilitate the secure management of trade transactions and provide access to detailed information, improving efficiency and saving corporates both time and money. The great message behind supply chain financing is that the technique is mutually advantageous: buyers enhance their own negotiating position and suppliers gain added value, with both parties benefiting from flexible settlement terms.