Having joined Spain’s Banco Santander in 1997, Alberto Amo spent eight years as a corporate banking director before gravitating towards trade finance.

After two years as head of cash management products for global transaction banking (GTB) in Spain, Amo’s knowledge of the regulatory landscape in GTB led him to the post of head of supply chain finance in 2007.

Since then, trade finance has always been a focus for Amo, especially in his current role as global head of trade assets solutions for GTB, which he has held since 2014.

A native of Spain, Amo said his journey at Santander has been shaped by his broad understanding of a wide range of products and innovations.

“Because of the needs of the different products and teams, I became someone with some depth in regulatory matters,” he said. 

“First for banking, and then mainly on capital markets for different asset classes, which is what I’m doing now – quite broadly.”

Asset classes in GTB at Banco Santander

Under the remit of GTB, Santander’s main activities are focused on export credit agency (ECA) financing and structured trades.

“A big chunk of what we do is receivables and payables, open account trade finance, and some of the regular trade business,” said Amo.

“Additionally, we take care of leasing, some lending, and so on. And outside of GTB, I also work with other asset classes, always in the illiquid space and structure.”

An important part of Amo’s work at Banco Santander involves securitising and distributing trade finance risk between multiple financial institutions.

As Amo points out, this is a complex process that is shaped by the relative position of the institutions involved.

“At the end of the day, the raw material for any kind of banking activity, but also for trade finance, is capital, liquidity, and credit related to capital,” said Amo.

“So it would depend on what the institution is looking for and then what restrictions they have – if they have restrictions with leverage ratio, or liquidity.

“For instance, in ECA financing, we play very much in the cover bond space, because we are looking for long- term liquidity, and we are not restricted by any kind of leverage ratio.”

In trade finance, Amo said that Santander seeks to maximise return on equity (ROE) versus return on assets (ROA), as is the case for American firms.

He also said that short-term trade finance transactions are pursued when appropriate.

“In short-term trade, we play more like credit relief,” he said. 

“Capital relief is tricky for low-density assets like short-term trade finance – it can be done, but you have to fine-tune the structure and the pricing that you pay for the coupon.

“So it depends on the relative position of the bank.”

Trade finance as an investable asset class

As one of the founders of the International Chamber of Commerce (ICC) Trade Register, Amo makes a strong case for trade finance as a uniquely low-risk and investable asset class.

Among its advantages for investors, trade finance is typically short-term, self-liquidating, and it boasts incredibly low default rates – a metric that can be gleaned from the ICC Trade Register.

“It is not that trade finance is a better asset class per se: it’s because of the characteristic of being self-liquidating, short-term, and so on,” said Amo.

“We have early warning signals, and we can manage our positions in advance.

“So when the default is occurring, we may be out. It’s not that trade finance bankers are smarter: it’s that they have the chance to take measures and do management of the assets.”

Among institutional investors, however, Amo believes that trade finance as an asset class is still poorly understood, and that there is a need for greater education.

“For institutional investors, it’s difficult to see the way you manage the assets and the servicing, and how you mitigate the risk, because of those early warning signals, so they need the right counterparty to be able to invest,” he said. 

“Having said that, I think that there has been a revolution in the last four or five years, and more and more insurance companies, and some pension funds, are becoming interested in trade finance, and they are learning.

“It’s still not large amounts in terms of what they invest, but it’s growing.”

The evolving regulatory landscape for trade finance

Finally, Amo also has a unique understanding on the complexities and nuances of the trade finance regulatory landscape, having worked on the capital relief and regulatory requirements with regards to Basel III reform and the Capital Requirements Directive (CRD) IV for banks who are financing trade.

Both regulations have impacted access to finance for small and medium-sized enterprises (SMEs), but nonetheless, Amo still believes that one of their defining features is the fact that few market participants understand the full implications of them.

“I think that not many people know the small details that are embedded in the regulation when it comes to trade finance,” he said.

“In CRD IV, there are a number of features: the one-year maturity floor, also in the liquidity coverage ratio.

“But there was something very specific, which was that the former definition of trade finance was really cross- border. We changed that, and then domestic trade finance was also considered real trade finance.

“That had a huge impact on the capital weights and the liquidity ratios of the financial institutions to be able to support SMEs.”

With SMEs now a much clearer focus for trade finance portfolios at major institutions, Amo said he expects their importance in the market to grow, even despite being disproportionately impacted by the COVID-19 pandemic.

“At the end of the day, SMEs are a growing force in international markets, but they tend to be domestic at this stage,” he said.

“They were not as constrained as they might have been by regulatory changes, so we keep growing this kind of domestic trade finance together with cross-border trade finance.”