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Facilitating trade with SWIFT’s BPO

Bank of China and BMO Financial Group take lead on SWIFT’s Bank Payment Obligation; Banks see huge opportunities in both domestic and cross-border trade

Published on 08 Nov 2010


The Bank of China announced on 28 October 2010 that its Jiangsu branch has provided the first ever Bank Payment Obligation (BPO) financing, via SWIFT's Trade Services Utility (TSU), to its customer, Nanjing Textile Import and Export Co., Ltd.

The first two cross-border transactions involving the BPO were between Bank of China and BMO Financial Group (BMO).  

"The BPO can function as the backbone for banks to offer alternative forms of financing, and also creates opportunities for banks to provide value-added supply chain management services," explains Guosheng Wang, chief product manager, Bank of China.

Sara Joyce, Executive Managing Director of International Financial Institutions at BMO Financial Group, announced at the Sibos conference in Amsterdam that BMO had issued the first two Bank Payment Obligations in favour of Bank of China, covering garments imported under open account from China by a BMO client in Montreal. "International trade is growing, and the tools required to ensure timely and secure flows of goods, information and funds are changing. BMO recognizes the value of BPOs in the equation, and is proud to be a pioneer in this area."

BPOs provide a bank guarantee of payment which the beneficiary bank can rely upon in extending financing to an exporter of goods or services. The guarantee is subject to the presentation of compliant data, currently presented via SWIFT's trade services utility (TSU).

This will mark the first time any bank has provided export financing against a BPO. Previous live transactions have been conducted either within China or between two branches of the same bank.

Bringing flexibility to the world of open account trade finance

Prior to moving to the TSU, Nanjing Textile Import and Export and its trading partner were using letters of credits (LCs) for settlement after establishing a trusted relationship with one another. They were, however, looking for a new settlement scheme that could help them reduce cost, simplify the workflow, improve efficiency, and still have the opportunity to obtain financing from their bank. The Chinese exporter specifically wanted to get more financing support from the bank before shipment, so that they could improve their working capital availability and have more opportunities to further expand their business.

"Financing is one of the key trade services, whether it's pre-shipment or post-shipment. So the BPO is really used as a tool to facilitate the banks in Asia into offering financing on the back of open account transactions. The adoption of the BPO will not be just by banks, but also traders, buyers and sellers," explains Connie Leung, SWIFT director, payments & trade markets, for Asia-Pacific.

Enabling banks to make better risk-based decisions for trade finance

SWIFT developed its Trade Services Utility solution (TSU) to help banks meet the industry trend in trade of moving towards more open account business.

SWIFT's TSU provides a unified electronic platform with an advanced telecommunications framework to ensure the safety and accuracy of information exchanged between different banks. It significantly cuts down the transaction lifecycle and costs for corporates, while helping to reduce days sales outstanding (DSO).

The TSU also supports the input, transmission, and matching of Chinese character information, thus, greatly increasing its potential use in China.

"With the BPO introduced into TSU, the creditworthiness of transactions is enhanced, and TSU BPO can function similarly to domestic letters of credit to facilitate domestic trade," says Mr Wang.

Bank of China champions TSU

The Bank of China was the only Chinese bank participating in SWIFT's Trade Services Advisory Group and now continues in this role as the only Chinese bank sitting on the BAFT-IFSA Global Trade Industry Council. The Bank of China is also a leading bank in the TSU Working Group in China and has been playing an active role in the discussions and collaboration between banks of the TSU business in the industry.

The Bank of China completed its first -- and the first in China -- TSU transaction in October 2007 at its Shanghai branch.

About BMO Financial Group
Established in 1817 as Bank of Montreal, BMO Financial Group (TSX, NYSE: BMO) is a highly diversified financial services organization. With total assets of US$386 billion as at July 31, 2010, and more than 38,000 employees, BMO provides a broad range of retail banking, wealth management and investment banking products and solutions. In 2010 Trade Finance Magazine voted BMO Best Trade Bank in Canada.

About Bank of China
Bank of China, or Bank of China Limited, is one of China's four state-owned commercial banks. Its businesses cover commercial banking, investment banking and insurances. Members of the group include BOC Hong Kong, BOC International, BOCG Insurance and other financial institutions. The Bank provides a comprehensive range of high-quality financial services to individual and corporate customers as well as financial institutions worldwide. In terms of tier one capital, it ranked 9th in the world's top 1,000 banks by The Banker magazine in 2007.