Banks record $2.3b losses from transaction banking
The transaction banking segment in the global financial services industry lost about $2.3 billion in 2015, as it recorded $36.8 billion worth of transactions, against $39.1 billion turnover achievement in 2014.
The development, which has already been attributed to global uncertainty in the price of commodities, which affected quantity of revenue, also impacted the cash management profile.
Leading the pack in the global loss in the business segment are 12 largest global corporate and investment banks, which recorded a six per cent decline year-on-year in 2015, the first of such in the last five years, according to analytics firm, Coalition.
The company tracked the performance of Bank of America Merrill Lynch, Barclays, BNP Paribas, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan Stanley, Société Générale and UBS, which among them, earned $36.8 billion from transaction banking last year, compared to $39.1 billion in 2014.
Transaction banking is the process of money transfer, typically for corporates, by banks and includes commercial banking products, domestic and cross-border payments, professional risk mitigation for international trade and the provision of trust, agency, depository, custody and related services.
In Nigeria, it affected the volume of receivables and transfers, especially within the banking sector, as private sector demands have been cut due to shortage of supply in foreign exchange and export proceeds.
Consequently, corporate earnings have generally plummeted from the banking sector to others, stoking increased operating expenses due to lost revenue, as well as the balance sheet position.
Although the Nigerian financial sector soundness indicators have been declared favourable, almost all the operators recorded lower than usual profits due to issues associated with transaction banking in 2015.
Within the sector, revenue from trade finance went from $8.8 billion to $8 billion, while cash management dropped from $30.3 billion to $28.7 billion.
Despite trade having slowed continuously for the past few years, transaction banking revenue was still growing until last year, going from about $35 billion in 2010 to its peak of $39 billion in 2014.
“Pressure in commodities and a slowdown in emerging markets let to lower revenue in trade finance, particularly in commodities trade finance and letters of credit,” says Coalition, adding that supply chain finance, on the other hand, outperformed due to increased client demand.
Conversations in the market point to maintained downward pressure on trade finance pricings despite growing regulatory costs, due to the combination of trade reduction (fewer transactions) and a return of liquidity in the bank market (more financiers), which has led to increased competition.
Still, transaction banking is not the worst-performing segment of financial institutions’ corporate and investment banking branches, as revenue from fixed income, currencies and commodities- banks’ trading segment, dropped by nine per cent in 2015, to $70 billion.
Investment banking and securities services also saw declines of five per cent and six per cent respectively, while only equities grew (by 10 per cent) last year, driven by derivatives and prime.
“Revenue across the CIB Index has declined more than 10% since 2010. In contrast to the overall decline, moderate improvement has been observed in transaction banking, which has led to its growing contribution,” the report added.
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