SECRO

Insights That Shape Global Trade Today and Tomorrow

Stay informed with expert analysis, product updates, and trends driving the digital transformation of global trade

Quantitative Analysis – Improving CCF, RWA, WACC with Secro Tokenized Bill of Lading

In this analysis, we compared two scenarios for a bank’s $100 million portfolio of commodity trade finance loans: one where 100% of the portfolio is secured with Secro tokenized e-bills of lading (eBL) and another where only 70% of the portfolio is secured due to the use of couriered paper bills of lading.

The use of Secro electronic bills of lading (eBL) can enable achieving 100% securitization of the portfolio by eliminating the time currently required to courier and process paper original bills of lading from the place of issuance to the physical location of the financial institution. Secro eBLs provide immediate, secure, and verifiable electronic transfer of the title document, ensuring that banks can promptly secure the collateral and apply the favorable risk weights without delays. This not only streamlines the process but also enhances the security and efficiency of trade finance operations, further optimizing the capital requirements and reducing the overall cost of capital.

Key metrics considered in the analysis include Credit Conversion Factors (CCF), first loss treatment, Risk-Weighted Assets (RWA), and Weighted Average Cost of Capital (WACC) for each tranche.

The analysis shows that securitizing the entire portfolio with Secro eBL significantly reduces RWAs and capital requirements due to lower risk weights assigned to secured tranches. Specifically, the total RWA for the 100% secured scenario is $136 million, compared to $149.2 million for the 70% secured scenario. Consequently, the capital requirements are lower in the 100% secured scenario. The WACC for the first loss tranche is higher due to its high-risk weight, but the overall WACC distribution shows that securing a larger portion of the portfolio reduces the cost of capital for mezzanine and senior tranches. This analysis underscores the importance of maximizing the secured portion of a portfolio with Secro tokenized bill of lading to optimize regulatory capital efficiency and reduce funding costs.

Comparison Table

Item 100% Securitization with Secro eBL 70% Securitization with paper BL
Credit Conversion Factor (CCF) 20% 50% (unsecured portion)
First Loss Treatment 1250% Risk Weight 1250% Risk Weight
Mezzanine Tranche Treatment 20% Risk Weight 20% (secured), 100% (unsecured)
Senior Tranche Treatment 10% Risk Weight 10% (secured), 50% (unsecured)

 

 

Tranche RWA (100% Secro eBL) RWA (70% paper BL)
First Loss Tranche $125 million $125 million
Mezzanine Tranche $4 million $2.8 million (secured)
$6 million (unsecured)
Senior Tranche $7 million $4.9 million (secured)
$10.5 million (unsecured)
Total RWA $136 million $149.2 million

 

 

Tranche WACC (100% Secro eBL) WACC (70% paper BL)
First Loss Tranche 9.191% 8.380%
Mezzanine Tranche 0.294% 0.590%
Senior Tranche 0.515% 1.031%

 

Capital Requirements

Metric 100% Securitization with Secro eBL 70% Securitization with paper BL
CET1 Requirement $6.12 million $6.714 million
Tier 1 Requirement $8.16 million $8.952 million
Total Capital Requirement $10.88 million $11.936 million