Trade Finance
History
The bank began participating in trade finance deals in 1996, when MDM was still a small institution. Over the next two years, its portfolio grew to more than USD30 mn. MDM also joined the PN issuance market for trade-related deals. During the 1998 crisis, all outstanding international debts were repaid at the time of contractual maturity, or even in advance. This differentiated MDM from other Russian banks, which either defaulted or were forced to restructure their debt. MDM gained a solid reputation during difficult times, enabling it to resume its participation in international trade finance deals in early 1999. In 2001, MDM raised the first structured syndicated pre-export loan from a Russian bank since the crisis and re-entered the international PN market.
In line with the bank’s overall growth, trade finance volumes have risen significantly in the last five years to reach their current high levels. Today, MDM can offer Russian companies and international counterparties a wide range of comprehensive trade finance products – and most important, share our knowledge and expertise in this area.
Trade finance requirements of Russian customers
In Russia, banks only began promoting trade finance products among clients engaged in foreign trade at the beginning of this decade. Banks moved from simply reacting to client requests toward aggressively marketing trade finance products. In the initial phase, it was necessary to introduce Russian companies to the advantages of complex trade finance products over simple working capital facilities. The most convincing argument was pricing, which amply compensated clients for the complicated documentation and additional discussions with international counterparties on new payment instruments. Currently, about 80% of all trade finance deals are conducted in order to benefit from cheaper international funding, rather than to cover production or payment risk.
Products
MDM employs two groups of instruments; application depends on the terms of the commercial contract and customer requirements.
Bilateral trade-related loan facilities
A variety of trade finance instruments can also be used for general funding by MDM or for refinancing existing loans to Russian importers and exporters. In accordance with best practices in transparency, MDM always informs international counterparties of the precise purpose of the transaction.
Reflecting changes in the market and demand from clients, cash loan facilities have come to dominate our loan portfolio. While plain vanilla LC volumes increased only 75% in the last 18 months, total bilateral trade-related loan volumes have more than tripled. Current market conditions provide clear support for this remarkable growth.
To increase their appeal for Russian counterparties, international banks are accepting Russian risk for longer periods, providing bilateral loan or promissory note facilities for import or pre-export financing. Products are being aggressively priced at more attractive levels. The main objective is to offer a simple instrument that obviates the need to renegotiate contractual commercial arrangements.
Deal tenors and amounts
LCs are usually issued in amounts starting from USD20,000 and up to USD5-6 mn with validity periods of 1-3 months and financing periods of 6-12 months. Transactions related to equipment imports may have a longer overall tenor of up to 2-3 years. Standby LCs cover individual or revolving deliveries with tenors of three months to two years and payment obligations of USD3-5 mn.
Bilateral trade-related loan facilities are raised in amounts starting from USD250,000-500,000, with maximum amounts of USD20 mn (the average is USD3-5 mn). Tenors may cover the actual trade cycle for financed consumer goods of 3-6 months, or revolving deliveries for consumer goods, services provided or equipment delivered for a period up to 2.5 years.
Our customers
In trade finance, we focus mainly on customers engaged in continuous cross-border trade. We also provide significant advisory services to customers who are just starting out in foreign trade activities or who are engaged in one-off contracts. Since MDM has a diversified loan portfolio, trade finance deals cover exports and imports from a wide range of industries, including consumer goods:
| Industries | Consumer goods |
|---|---|
|
|
Russian counterparties belong to a group of emerging blue chips with annual sales of USD50 mn to more than USD1 bn. They are located mainly in Moscow, but also in Russian regions such as Rostov, St. Petersburg and Yekaterinburg. In total, trade services can be provided in more than 35 regions via our large branch network .
The geographical breakdown of the international commercial counterparties involved in MDM’s trade finance deals is as follows.
Banking partners
Most trade finance deals would be impossible without the participation of international banking counterparties. Over 100 banks are ready to accept MDM risk to an estimated total amount of USD2 bn. We appreciate the experience of these banks in trade finance and rely on their assistance when structuring difficult transactions in a variety of areas. With the continuing growth of our portfolio, we are always looking to increase the number and geographical presence of potential confirming banks and lenders.
Geographical breakdown of banking partners by estimated value of credit lines:
MDM is Russia’s most transparent major bank. New lenders can always expect detailed answers to their credit-related questions. Please contact us directly or visit the Investor Relations section of this website.
We also want to note that MDM participates in a variety of trade finance facilitating programs conducted by USDA, EBRD and IFC (currently under negotiation).
Contacts
For inquiries related to trade finance deals, please contact our International Trade Finance team by phone: +7 (495) 797-9525, fax: +7 (495) 960-2249 or e-mails:
- Dmitry Minaev
Managing Director - Olga Nizovskaya
Vice President - Larisa Rodionova
Manager