Rebalancing the Economy: Trade and Investment

Written evidence from Royal Bank of Scotland

Executive Summary

· As a global leader in International Trade Finance, RBS has an important role to play in promoting exporting among UK companies. Our trade finance products help UK companies to better manage their risks and provide funding to support their overseas trade.

· RBS is working closely with ECGD and UKTI to promote international trade. Most recently we have partnered with the UKTI for their Doing Business in Asia events across the UK encouraging local businesses to consider exporting to emerging markets. We will also be hosting a s eminar with the British Exporters Association on finding new m arkets focusing on Central and Eastern Europe later this year.

· We support the aims of the Government’s consultation on the Trade White Paper. We too believe that there are a number of practical barriers to increasing international trade - not least the fact that firms are not aware of the potential opportunities and benefits of doing business internationally, or have the appropriate skills and knowledge to do so effectively.

· We have recently launched a campaign called Finding New Markets to encourage exporting among UK SMEs offering free online training to help them to better understand export finance and inform them of the products and services available to them. We have set up a new International Trade Hotline to advise and support potential exporters who are keen to export but lack the knowledge to do so with confidence. As part of our campaign we are also proactively contacting businesses we believe have export potential to discuss their needs.

· We believe that we are well placed to help increase UK business exports. We have the largest team of Institute of Export CITA qualified international trade advisers in the UK and have been voted the ‘Best Bank for Trade Finance’ and the ‘UK's Best Global Trade Finance Provider’ by our customers in 2010 by Global Finance and Euromoney respectively.

Introduction

1. Many UK based companies are looking to expand export activity in order to grow their businesses. However, selling into new international markets brings increased risks which can often act as a significant deterrent. Through our international trade products and service s, coupled with our global network we are able to help businesses to better manage their risks. Recently, we have been promoting our capabilities to encourage more UK businesses to consider exporting.

2. RBS has an international network of branches covering 40 countries; t he majority of the world’s trading economies , and operations that handle over 2 million transactions annually. We can help deliver efficient working capital solutions for businesses trading across the globe. We have a dedicated international advisory team within our Global Transaction Services Department to ensure that UK companies can trade efficiently whilst managing their associated risk s . RBS is a leading provider of global payments world-wide and has the largest team of CITA qualified International Trade Advisers of any UK bank

3. Over the past 12 months over 600,000 UK businesses have used RBS to make cross-border payments. Additionally, in the first 10 months of 2010, we helped structure in excess of 54,000 international trade transactions by supplying Letters of Credit, Documentary Collections and Bonds and Guarantees. A large proportion of these were to new and emerging markets, with a value of c. £3.5 billion. The majority of these transactions, by volume, were supporting our SME customers. We have been voted the ‘Best Bank for Trade Finance’ and the ‘ UK 's Best Global Trade Finance Provider’ by our customers in 2010.

Promoting exports

4 . Recent research commissioned by RBS demonstrated that t wo thirds (69 per cent ) of businesses surveyed believe that now is a good time to inc rease overseas trading . A very similar proportion of businesses (68 per cent ) also recogni se that export activity will be key to the UK ’s economic recovery.

5. The survey highlighted a number of barriers preventing businesses fro m realising exporting potential . Understanding the financial tools to fund export trade was an issue, with 59 per cent admitting the sector is ill-informed. For example, 45 per cent of respondents agreed that Asia presents the biggest opportunity for UK businesses, however only 11 per cent fully understood how to trade in that market. This is important as forecasts show tha t whilst UK GDP is expected to grow by 2 per cent in 2011, China ’s growth is expected to be 9.6 per cent; India ’s 8.4 per cent and Indonesia ’s 6.2 per cent. Over half of respondents (58 per cent) stated that easy access to advice from experts in overseas trade would give them more confidence in exporting abroad .

6 . In response, NatWest and RBS have taken a number of steps to make it easier for businesses to increase export activity. We are offering improved access to expert advice with the introduction of a new international trade hotline. We have also introduced free online training courses to help businesses manage risks when trading overseas in new markets. To encourage more businesses to begin exporting, we have been contacting export-ready customers to discuss their needs and to help them make the most of international trading opportunities .

7 . We have a range of export products available to customers including Letters of Credit which offer protect ion against payment default. We have the ability to confirm letters of credit from over 180 0 banks in over 80 countries. W e also offer bad d ebt protection through our invoice finance products. We can offer pre and post shipment finance to aid cashflow . In addition we offer Documentary Collections, Bonds & Guarantees a nd standby Letters of Credit. We have promoted these services widely, including in direct mail to customers, advertising in key trade publications and in the media.

UKTI and ECGD

8. We believe that m ore can be done to make SMEs aware of how trade finance solutions can help their business. We are continuing to work wi th BIS and HMT through the BBA T askforce to look at ways we can promote exporting and improve the products/ support available to UK companies. Exports are not able to be supported by the current EFG programme due to state aid considerations and the Taskforce has been looking at ways exporting companies can be supported.

9. Since the early 1990s the support that the Government’s Export Credit Guarantee Department (ECGD) provides to UK exporters has reduced . This has been due to a number of reasons, not least because of the privatisation of its short term trade credit insurance operation which was responsible for supporting the bulk of exports covered by ECGD. Since that time, ECGD has been viewed as having limited relevance to the majority of exporters and the risk of exporting now falls largely onto the exporting company - or their bank. This has meant that for some smaller companies, exporting can be a difficult and time-consuming process.

10. The focus of ECGD has, since the changes of the early 1990s, shifted away from smaller businesses and towards more large scale project related contracts . As a result, ECGD has a more limited product range relative to other ECAs in advanced econ omies and smaller companies can have difficulties understanding the ECGD products and services which may be available to them.

11. In recent years however , ECGD has been changing and has been keen to engage with industry on supporting UK exports, including those from smaller companies. We have worked closely with ECGD on their Letter of Credit Guarantee Scheme and although the scheme has not yet been widely used we believe that with increased awareness of the scheme among companies and staff will mean that it does have potential to deliver benefits to UK companies in future. We have also been working with ECGD on the development of Bonds Support and Pre-shipment Finance cover which may provide another way for the Government to help underpin UK exports. We would encourage the continuation of the recent trend of more active engagement and product development for this market.

12. We have also been working in partnership with the UKTI Asia Task Force to host a series of regional events throughout 2010 and into 2011. These events promote to UK business the breadth of opportunities in key Asian markets through a programme of Doing Business in Asia: Meet the Experts events around the UK . These practical events bring together expertise from across the UK and Asia with the aim of galvanising more UK companies to do business in the region. These events include, speeches, market clinics and managing risk/trade finance drop-in clinics .

13. RBS is involved in these because of our significant strengths in Asia . We are present in 11 countries in the region, employing over 13,500 staff and servicing over 75,000 accounts. We offer a full range of financial solutions in the currencies of Australia , China , Hong Kong , India , Indonesia , Japan , Korea , Malaysia , Singapore and Thailand .

14. As part of these UKTI events, we have been delivering seminars focusing on how businesses can manage risk and cash flow when trading with Asia . This session helps businesses to better understand how trade finance and other international banking solutions can be used for effective risk management, to provide funding and to ensure better visibility and control over financial aspects of business seeking to expand internationally. The session aims to help businesses appreciate the full range of trade finance, international cash management and invoice finance solutions that can help protect and collect cash as trade business grows. It is aimed at companies of all sizes who currently or plan to trade in Asia

15. RBS Group Senior M anagement have also taken part in UK trade delegations. Most recently our Group Chairman was part of the Chancellor’s financial services delegation to China . We believe these trade delegations help to demonstrate Government support for UK business overseas and provide a valuable way to strengthen trade links between the UK and key overseas markets. The delegations are well organised and offer opportunities to meet key influencers and business people in markets that are important for the growth of the UK businesses.

White Paper Consultation

16. We support the aims of the Government’s consultation on International Trade. We too believe that there are a number of practical barriers to increasing international trade - not least the fact that firms are not aware of the potential opportunities and benefits of doing business internationally, or have the appropriate skills and knowledge. Through our Finding New Markets campaign we hope to bridge this gap and welcome any future Government support for export promotion campaigns.

January 2011