The Art of Connection: Exploring the World of Correspondent Banking

“Correspondent Bank” the concept may be new or unfamiliar to many people. Well, the activities of a correspondent bank are very interesting! It’s all about interactions, liaising, communications, relationships, networking and most importantly roping two separate financial entities (especially banks, but not limited to) in a single knot! With the current fastest-growing financial industries whereas approx. 25000 banks operating globally, it’s next to impossible to have direct connections between the banks/financial institutions with all counterparts. It’s not only about capacity, but also the cost, timing, effectiveness etc. Hence it is required to connect through an institution who may act as the media or bridge to connect two entities located in separate places (usually cross border).

Let’s be more precise. A Correspondent bank is an authorized institution, works based on the underlying bilateral agreement to connect financial institutions globally through facilitating money movement and trade related services. In essence, correspondent banking can be defined as a relationship between two banks, where one acts as the correspondent bank and provides various services to the other, known as the respondent bank. The most acquainted platform is ‘SWIFT’ through which a domestic bank with clients in different countries can partner with a correspondent bank to perform trade activities with its clients internationally. However, following the gradual increase of demand through globalization and digital transformation, some other customized platforms are also developing to ease the trade liaising process between the financial entities across the world. Nevertheless, correspondent banks may also be able to act as the intermediary for domestic clients for local transactions. i.e. deposit collection, document processing, fund transfer agent etc.

The accounts held between correspondent banks and the banks for which they provide services are referred to as nostro and vostro accounts. Correspondent banks may enter a foreign financial market to extend their services across the world with a direct local presence or through an agent in consideration of relevant laws and regulations. A correspondent bank must follow international guidelines along with local rules and regulations to undertake any activities permitted by the authority.  There is a clear distinction between the correspondent bank and intermediary bank, though it sounds similar. These two types of banks are mainly distinguished by the number of currencies that they handle. More specifically, a correspondent bank commonly deals with multiple currencies, whereas intermediary banks usually deal with a single local /domestic currency. Generally, an intermediary bank does not have standard costs, but a pre-fixed rate as per policy by individual bank for transaction processing.  Fees typically range between $15 and $30 per transaction. On the other hand, correspondent bank offers a wide range of services with different rates subject to transaction profile. In addition, Intermediary banks are especially useful if two partner banks do not have an account with one another, or when one of the banks is not on the SWIFT network for executing transactions. In this case, the intermediary bank can help a transaction move from one bank to the other. On the other hand, a correspondent bank, apart from transaction settlements/fund transfer, also offers many other services with multiple currencies, i.e.

• Wire transfers of messages
• Trade Document checking and processing
• Allocate limit and arranging Trade Finance
• Currency exchange
• Treasury services
• Check clearing
• Managing international investments
• Collecting documents internationally, etc.

A correspondent bank can take maximum benefit out of locality, acceptability, language, customer reach, relationship, business culture, risk minimization etc.by establishing a local office or engaging a professional agent team for a specific region with minimum costs for business expansion. It’s now becoming popular gradually and globally.

MAY International Trade Services Limited, an institution bridging for correspondent banking services in the Bangladesh market through foreign relationship banks. MAY International, out of banking arena, had started its journey back in 2015 with an expertise team in a view to bridging for the end-to-end correspondent banking services to the local banks. We have a very well-profile professional team from different banking backgrounds, especially experience from different reputed global correspondent bank/s. Our liaising services offer a variety of correspondent banking services, including but not limited to LC advising, payment processing, credit report sourcing, International Container Tracking and Vessel Screening System, Nostro account opening with international bank etc. In addition, we provide some other relevant services to our customer in Bangladesh on behalf of our relationship financial institutions located in different geography.

As mentioned in the beginning of this article, a correspondent banking job is truly interesting as it allows the associates to increase the scope of learning, work with domestic and international institutions, to know the best practices of international business and gather knowledge and update continuously, especially on trade. Industry research, self-updating, innovative idea generation, strong networking etc. is a must to upgrade and secure a client base in the competitive market.