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Global transaction banking revenue slump deepens in Q2 – Coalition

The revenue decline at the world's 10 largest transaction banks accelerated in the second quarter amid interest rate cuts and the continuing deterioration in global economic activity due to the COVID-19 pandemic, research company Coalition said in its latest sector index.

Q2, H1 mark first drops in 3 years

Total transaction banking revenues fell 13% year over year to $6.4 billion in the second quarter, more than double the 6% decline in the first quarter. Over the first half, transaction banking revenues fell 9% year over year to $13.8 billion. This was the first drop after three consecutive years of growth, Coalition said.

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The main drivers for the decline were interest rate cuts and the economic impact of COVID-19, with the Asia-Pacific and Americas markets showing signs of being more susceptible to the current operating challenges than Europe, the Middle East and Africa, according to Coalition. Despite the negative interest rate environment and a volume slump in the second quarter, EMEA showed more resilience, Coalition said.

While first-half transaction banking revenues in the EMEA region fell 4% year over year, revenues in Asia-Pacific dropped 14% and 10% in the Americas, the data shows.

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Trade finance

Total trade finance revenues were down 4% year over year to approximately $2.8 billion in the first half, with traditional trade finance recording a bigger decline, at 5%, than structured trade finance, whose revenues fell 2% year over year to $1 billion. The fall in traditional trade finance revenues, which stood at $1.7 billion in the first half, was attributed to weaker second-quarter volumes due to the pandemic's impact on major global economies.

Commodity trade finance, which saw a sharp volume drop in the second quarter due to oil price volatility, was the key driver for the decline in structured finance. Supply-chain finance, on the other hand, continued to see robust growth thanks to growing volumes, Coalition said.

Cash management

Lower interest rates dealt a heavy blow to cash management revenues, which fell 11% year over year to $11 billion in the first half of the year, the first decline in three years, according to Coalition's index. The overall revenue decline was chiefly driven by a 14% drop in liquidity and balances revenues to $7.8 billion. These revenue streams were affected by interest rate cuts that offset the strong growth in deposit balances. While deposit balances grew on the back of increased drawdowns, the rate cuts led to a fall in deposit productivity, Coalition said. Payables and receivables revenues fell 1% year over year.

Coalition tracks cash management and trade finance revenues at Bank of America Corp., Barclays PLC, BNP Paribas SA, Citigroup Inc., Deutsche Bank AG, HSBC Holdings PLC, JPMorgan Chase & Co., Société Générale SA, Standard Chartered PLC and Wells Fargo & Co. The analysis includes revenues and deposits from all institutional clients and corporates with an annual turnover of more than $1.5 billion.

2020 outlook

Full-year revenues are expected to decline at a rate similar to the first half, given that third-quarter volume is below the first quarter's, Eric Li, research director at Coalition, said in a written comment.

The interest rate environment and global GDP development will remain the biggest challenges to transaction banking revenues by the end of the year, according to Li.

Coalition is owned by CRISIL. CRISIL and S&P Global Market Intelligence are owned by S&P Global Inc.