Rethinking Trade Finance 2010
ICC report tracks developments on trade recovery
ICC report says prospects for a strong and lasting trade recovery are mixed, with access to affordable trade finance constrained, trade protectionism still a problem, and banks facing tougher capital requirements for their trade assets.
The survey report, titled Rethinking Trade Finance 2010 is the third commissioned by the World Trade Organization's Expert Group on Trade Finance to track the developments in the industry. SWIFT has again contributed a section using cat 4 and cat 7 (Trade Finance) statistics.
"The 2010 survey has confirmed that the current global financial crisis has continued to affect financial institutions and markets worldwide," the report concluded, citing a 12% drop in trade in terms of volume last year, the sharpest decline since World War II. This is a challenging economic environment, and trade volumes may be further impacted in the coming months. On a global basis, the predictions for 2010-2011 remain cautious; many expect that the economic turmoil will continue to predominate."
ICC said the drop in trade was less marked in some regions, particularly Asia. Most Chinese partners benefited from that country's fiscal stimulus package and the rebound in Chinese imports. Worldwide, exports of durable goods were most affected, while trade in non-durable consumer goods including clothing and food declined the least. The services trade was generally more resilient to the crisis than the merchandise trade.
But while demand for trade finance remains strong for traditional trade finance instruments, the costs remain substantially higher than before the global recession. Some 30% percent of respondents said there had been an increase in fees for commercial letters of credit, standbys and guarantees in 2009. The increase was attributed to higher funding costs, increased capital constraints, and greater counterparty risk..
The report raises concerns that despite the injection of US$250 billion in aid for trade finance over a two-year period, made available following the G20 summit in London in April 2009, evidence is accumulating that the implementation of the capital adequacy regime under Basel II rules is contributing to the drought in trade finance. ICC has expressed concern in the past that the proposal by the Basel Committee on Banking Supervision to increase the risk weighing of trade finance under a new framework to limit bank leverage would adversely impact the supply of cost-effective trade credit to businesses.
"SWIFT's contribution to the survey is much appreciated", said Thierry Senechal, Policy Manager, ICC Banking Commission, "Hard facts and historical detail at global and regional levels complement the statistics at individual organization level very well."
André Casterman, Head of Trade and Supply Chain, SWIFT adds: "We are delighted to be partnering with the ICC in order to deliver the industry business intelligence on the global Trade activity. By the end of this year, we will provide the industry with additional value-based statistics tools on Trade."