how popular is discounting business?

Vadim Gusev · 2012-02-17

Hi to all,

I would like you to share info as for how popular is the deferred payment discounting business in the banks and what is the focus group of customers for such transaction?

Thanks,
Vadim

Mr. Smith · 2012-02-17

Not sure if this helps, but given UCP600 sub-Art 12(b) my organisation will normally 'discount' a DPU where requested by the beneficiary, whether or not they are a customer.

Vadim Gusev · 2012-02-19

thanks for reply, however the idea was to understand how popular is (what's the demand for) such kind of transactions?

Hakan Aldrin · 2012-02-20

©Vadim - Do u mean like discounting of LCs?

Daria Avdeeva · 2012-02-20

I assume Vadim meant discounting under LC. Then well it is not up to the bank(s) to decide, they are following the clients' policies and demands.
If the question was whether we see increase in the number of discounting requests, I would say it has been quiet stable. The clients who had it in there "DNA" to discount, continue doing it. It is more challenging to get the clients who have not discounted before "to cross the line" Thankfully, though, certain markets press more and more deferred payment terms on the clients, so hopefully there is more discounting to come. So the clients operating within these markets it would be more and more natural to consider discounting.

Vadim Gusev · 2012-02-20

yes, Daria is right, I meant discounting of a DP under the LC. Thanks, Daria, for short overview, need to admit that you puzzled me for a while with "DNA" to discount )) anyway from your post I understood that this business is for some niche banks/customers and thus may not be very popular as it requires focused attention and specific expertise. am I right?

Daria Avdeeva · 2012-02-21

Hi Vadim,

I do not think that discounting in itself requires specific expertise (it is a very straightforward operation). But I agree that the customer needs to have focus/demand for getting paid/cash quicker in order to consider discounting.
So some customers have this focus (it is innate for them (in their genes/DNA:-) to use all financing opportunities including discounting to release tied-up capital, while for others it is an option they do not often utilise. As a consequence you get some customers (especially in industries with quick turnover) that will be more dependent/interested in discounting.
I do not see though that there is a special bank category doing or not doing discounting. Any bank supporting its clients aspirations in international trade transactions will try to assist in confirming/discounting LCs.

Vadim Gusev · 2012-02-21

Hi daria, i referred to special expertise and focus with regard to all aspects including sales and marketing (may be legal). I do believe that a product would need a special promotion and focusing, otherwise there would not be any substantial demand. So your post about the stability of the discounting business volumes and challenge in acquiring new customers caused me to feel the marginal character of the business what could be in general case interested only to some specific players which are ready to invest time and efforts into the product
any way thanks once again for your comments, which i do appreciate.
Ciao,
vadim

Vadim Gusev · 2012-02-21

Daria, sorry for casual spelling your name from the small letter ))

Daria Avdeeva · 2012-02-22

Hi, Vadim,
to conclude my comments (not to make this thread too long): I agree that focus within client organization is required if you think of using discounting, for example, as a part of company's risk policy (e.g. all LCs with amount over XXXX and issued on deferred tenor longer than XX days should be discounted). However, I believe that the focus then would come from treasury/controller/finance departments rather than sales or legal. As it is more natural for them to look after cash flow/costs.
I also hope/think that scarceness of liquidity in the market might make clients who were not looking for discounting option before to test it.