StanChart, DBS Work on Distributed Ledger for Trade Financeby
Banks have tested technology, will invite companies to join
Distributed ledgers underpin digital currency transactions
Standard Chartered Plc is working with DBS Group Holdings Ltd. on developing distributed ledger technology for trade finance in Singapore, in a bid to make such transactions simpler and more transparent.
The banks have successfully tested the technology with each other, and will invite other companies into the system next year, Shirish Wadivkar, head of payables, receivables & flow FX at Standard Chartered and Lum Yin Fong, DBS’s global head of client management and implementation, said on a call with Bloomberg on Thursday. Estimates on development costs aren’t available yet, they said.
In pursuing the technology that underpins cryptocurrencies, including bitcoin, Standard Chartered and DBS are developing a new approach that could improve the trade finance business by speeding up banking transactions, while cutting costs and boosting transparency. This is the world’s first application of distributed ledgers in trade finance, the banks said in an e-mailed statement also released Thursday.
“This could revolutionize and transform trade operations, enhancing risk mitigation and creating more efficient processes for both corporates and banks,” Lum said in the press release.
Banks are seeking ways to bolster trade-finance operations in Asia that have been hobbled by slowing economic growth in the region and slumping commodity prices. Since reaching a peak of about $145 billion in June last year, the value of trade loans provided by banks in Singapore and Hong Kong has tumbled 38 percent due to the slowing Chinese economy and a slump in commodity prices, central bank data show.
Standard Chartered ranked second after HSBC Holdings Plc in terms of its market share in arranging trade finance for large Asian companies, according to a survey by the Stamford, Connecticut-based research firm Greenwich Associates published on Sept. 16. DBS ranked fifth, the survey said.
Risks in the Asian trade-finance business were evident last year when London-based Standard Chartered took a $193 million write-off against its exposure to a metals warehouse fraud in China, which also hit Citigroup Inc. and Standard Bank Group Ltd. The incident involved a Chinese company pledging the same metals stockpiles to banks several times for loans.
At the moment, trade-finance transactions take place bilaterally between a borrower and a bank. With distributed ledger technology, each transaction is recorded and shared among participants of the system, said Wadivkar. Once recorded, the transaction cannot be erased from the system, he said.
The Infocomm Development Authority of Singapore, which oversees the nation’s information technology and telecommunications, and the Monetary Authority of Singapore, the central bank, were involved in the project, which may be extended to the rest of Asia.
“We’d also like it to be used across the region as well, because it’s only then that you are able to mitigate the risk in duplicate transactions," said Lum.