Commerzbank has processed its first transaction settled by a Bank Payment Obligation (BPO) between Germany and China, covering the export of chemicals from China to Germany.
Commerzbank’s customer, the buyer, is TRIGON Chemie GmbH, based in Schlüchtern, Germany, which supplies a wide range of speciality chemicals to customers worldwide. The seller is a supplier of chemicals and customer of Industrial and Commercial Bank of China (ICBC) in Beijing. Trade business between the two was previously handled by documentary collection.
Importers are increasingly recognising the practicability and profitability of the BPO. TRIGON chose to use a BPO given its ability to provide assurance of payment at the due date, faster handling of goods, earlier receipt of trade documents, and optimised processes.
Agnes Vargas, Regional Head for Greater China & ASEAN at Commerzbank, comments: "We are very happy to have concluded the first BPO transaction between Germany and China. Our client, TRIGON, showed an early interest in BPO settlement, so the challenge was to find a bank on the seller's side able to handle this type of transaction. We believe it to be a significant step forward for BPO settlement between the two countries.”
With the particular backing of the ICC Banking Commission and SWIFT, there has been growing demand for, and an increasing number of, BPO transactions. The digital settlement tool consists of the irrevocable undertaking of the buyer's bank towards the seller's bank to effect the relevant payment as the invoice falls due. This undertaking of payment is made based on the electronic matching of trade data between participating banks on the SWIFT Trade Services Utility platform. While the BPO is a new instrument in trade finance, it is also an enabling framework for supply chain finance, following the requirements of the market for providing liquidity and mitigating risk along the supply chain.
Commerzbank processed its first two live transactions supported by a BPO - one for a German SME and one for an international group based in Belgium - in October 2014. Since then, the bank has increased its BPO business, successfully settling transactions for multinational companies, large corporates and SMEs - both within Europe and overseas. In August 2016, Commerzbank London went live with the first UK BPO transaction together with UniCredit Italy.