Transaction banking revenue hits highest level since global financial crisis

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Transaction banking revenues hit their highest level since the global financial crisis as the sector benefited from rising interest rates and huge demand for corporate finance.

The world’s 10 largest transaction banks recorded combined revenue of $15.6 billion from cash management and trade finance in the first six months of 2022, according to new data from Coalition Greenwich. This represents a 22% increase from the $12.8 billion for the same period last year.

Coalition Greenwich, a company owned by S&P Global, tracks transaction banking revenue from Bank of America Corp., Barclays PLC, BNP Paribas SA, Citigroup Inc., Deutsche Bank AG, HSBC Holdings PLC, JPMorgan Chase & Co., Société Générale SA, Standard Chartered PLC and Wells Fargo & Co .

Second-quarter revenue drove most of the growth, according to Eric Li, research director at Coalition Greenwich. During the period, cash management and trade finance revenues hit their highest level since the 2008 global financial crisis, he said in an interview.

“This is a record quarter in terms of bank performance. Every bank we track saw record volumes in business and cash,” Li said, adding that the rapid rise in interest rates had also increased margins, particularly within banks. liquidity activity.

Cash management revenue, which covers products from payables, receivables, cash and balances, was up 26% in the first half of 2022 from a year earlier, the data showed. Revenues from this line of business have been hit hard by the coronavirus pandemic and lower interest rates in 2020.

According to the research, transaction banking revenue grew across all regions in the first half of 2022, with the Americas seeing the highest growth, in part due to the strength of the US dollar.

The Greenwich Coalition expects the second half of 2022 to be just as strong, if not stronger, as further interest rate hikes come into play, Li said, although he noted that a potentially severe recession could lead to a slowdown in business.

Supply chain disruption drives growth

Trade finance was up 7% year-on-year as demand for corporate finance “exploded”, Li said. Supply chain disruptions in sectors such as commodities agricultural and energy commodities following Russia’s invasion of Ukraine led to an increased need for businesses to provide supply chain finance and commodity trade finance. Revenue for both products grew more than 20% in the first half of 2022, according to Li.

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Revenue growth from supply chain finance may slow, however, as market competition intensifies, Li said.

A supply chain finance program is usually set up by a large buying company with its bank to allow its suppliers to be paid quickly and benefit from the buyer’s credit rating. New and existing lenders have been building capacity in this space, defying fears that the collapse of supply chain finance provider Greensill last year could derail the market.

Supply chain finance has now become a mature product in developed markets, Jonathan Lonsdale, Head of Trade and Working Capital Solutions at Banco Santander SA, told the International Trade and Forfaiting annual conference. Association in Porto on September 7. the company, prices have become “very thin”, he said.

The next opportunity for banks is to export the supply chain finance model to emerging markets and take advantage of the cross-selling opportunities the product offers, Lonsdale said.

“Supply chain finance puts you in contact with a lot of counterparties; you have the buyer and you have all the sellers. So you meet a lot of potential new customers in the market you’re opening up,” he said.

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