It has been a tough year for Britain's Lloyds Banking Group. Between the UK government taking a significant stake in March and a pro-forma £4 billion ($6.5 billion) first-half loss, not much positive news has been reported about the bank -- but through it all, the institution's wholesale trade finance business has grown.
"Our actual trade volumes have been higher, while overall global trade flows have fallen," said Michael Gilham, head of trade finance for financial institutions at Lloyds TSB in London.
According to the UK Revenue and Customs Department, China is the country's largest trading partner in Asia (9th largest overall) with total trade during the first 10 months of 2009 worth £4.05 billion, down 1.7% year-on-year.
The rise in volumes, coupled with the expansion of the bank's customer base that has happened partly as a result of its January acquisition of UK-based HBOS bank, has prompted Lloyds to locate its first financial institutions specialists to Asia. Patrick Furlong, Asia-Pacific director of financial institutions, and Jason Ving, Asia-Pacific relationship manager for financial institutions, are now based in the bank's Hong Kong office.
"Our ongoing strategy is to fully support our corporate customers in Asia," explained Gilham. "UK to Asia is our biggest trading market in terms of trade finance products."
He continued: "It has been a progressive strategy. Our business with Asia has been growing in momentum and importance. The bank is looking to support its customers in their trading activities and we have seen more and more demand from them for trade finance in these markets."
Working with Gilham, Furlong and Ving are responsible for all the financial institutions-related wholesale banking business, including trade finance, in the region. The team, which was launched at Swift's annual Sibos conference in September, covers Australia, China, Hong Kong, India, Japan, Malaysia, New Zealand, Singapore, South Korea, Taiwan and Thailand.
The expansion of Lloyds' wholesale banking business is in line with industry trends, which have seen partially nationalised institutions pare back riskier business lines, for example investment banking and retail lending, to focus instead on annuity-based segments such as cash management and trade finance.
Brian Stevenson, global transaction services head at the Royal Bank of Scotland -- another British institution bailed out by the government in October 2008 -- told FinanceAsia in September that transaction banking remained "core" to the bank when other business lines were being shed.
According to Gilham, Lloyds' strategy is to build on and expand its relationships with "pre-eminent" financial institutions in individual markets. "We are a perfect counterpart for Asian banks because we complement each other very well," he said.
Despite the new staff in the region, Furlong said the majority of Lloyds' trade business will continue to be "booked" in the UK.
When asked why an Asian financial institution should partner with Lloyds when other banks can offer global trade finance partnerships, Gilham said the bank offers other institutions one of the most extensive UK franchises and a rigorous risk management ethos.
Much of Lloyds' current financial woes are the result of its HBOS acquisition. Pushed by the UK government, the merger cost the bank £12 billion and brought it a balance sheet heavy in toxic assets. Many in Britain have called the acquisition an expensive mistake.
In March, the British government presented a plan to up its stake in Lloyds to 65% of the voting shares in return for £260 billion of the institution's toxic assets, though it eventually took 43% of the bank, a stake worth £15.4 billion based on Lloyds' December 16 market capitalisation on the London Stock Exchange.
Lloyds may continue to grow in Asia. "We have a number of valuable clients in the region, which the team in Hong Kong can now support more effectively. This also provides us with the opportunity to explore new business opportunities and increase the number of financial institutions, simply because we now have the resources and time to spend researching each of the markets," said Furlong.
Gilham added: "Lloyds' is pursuing a controlled, measured expansion [into Asia] and once we've proved the model works, I'm sure there will be considerations about expanding that further in the not too distant future".
Whatever steps Lloyds makes next in Asia are likely to be constrained by its government overseers, however. Earlier this month, European Union regulators forced the bank to divest 600 branches in return for approval of a £21.5 billion fundraising proposal.
