Prospects for strong trade recovery mixed - ICC report
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, a major new survey on trade finance by the International
Chamber of Commerce (ICC) said yesterday.
The survey report, titled Rethinking Trade Finance 2010, includes the
results of specific responses received from 161 banks in 75 countries, a
32 percent increase in the number of respondents compared with the last
global survey in March 2009.
The surveys, including an interim one published in September, were
commissioned by the World Trade Organization's Expert Group on Trade
Finance to track the developments in the industry.
"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 percent 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," it
said.
Nevertheless, 84 percent of respondents said they anticipated an
increase in demand this year for traditional trade products such as
commercial and standby letters of credit and guarantees.
In terms of value, 60 percent of respondents indicated that trade
finance activity had decreased between 2008 and last year, while 43
percent of financial institutions reported a decrease in export letters
of credit volume, slightly down from 47 percent in the 2009 survey.
Regarding imports, 26 percent of respondents said they saw a decrease in
import letters of credit, with 51 percent seeing no change from 2008.
ICC said the drop in trade was less marked in some regions,
particularly Asia. It said 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.
"The survey is a continuation of ICC's long series of actions in
support of international trade," ICC Chairman Victor K. Fung wrote in a
foreword to the report. "In recent years ICC has emphasized the
imperative of concluding the Doha Round of trade talks and on continuing
the fight against protectionism," he wrote.
The report took note of the pledges to fight protectionist pressures
by G20 countries following the Washington, London, and Pittsburg
summits. "Yet since the onset of the crisis, many countries have veered
towards policies that favour domestic products over foreign imports,"
the report noted.
"Protectionist measures should be resisted, as they curtail trade
flows and add to the adverse effects of the global recession on
individual country exports, economic activity and unemployment," the
report further noted.
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.
Also worrying is the intense scrutiny of documents by banks, with 34
percent of respondents saying they had seen an increase in the number of
refusals for trade finance, up from 30 percent in 2009. The number of
doubtful or spurious discrepancies remained high, with 44 percent of
respondents indicating that they had experienced such cases compared
with 48 percent the previous year, at the height of the financial
crisis.
"This trend toward claiming discrepancies that effectively have
little or no foundation is worrisome and may prove damaging to the
integrity of the documentary credit as a viable means for settlement in
international trade," the report said.
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.
"It appears that low-risk trade finance instruments are being lumped
together with higher risk off balance sheet items, without an
appreciation of unintended consequences," the report added. |