Low-risk trade finance not to be feared - ICC
The International Chamber of Commerce (ICC), today issued Global
Risks? Trade Finance 2013 providing a timely, accurate and comprehensive
outlook on the risks in trade finance from the global trade finance
industry's perspective.
Based on data from ICC's Trade Register, a comprehensive online
database of over 15 million transactions provided by 21 banks, the new
report shows that trade finance is a relatively low-risk asset class
that should not be feared by financial institutions, nor over regulate
by governments.
In relation to comparable corporate default rates, the trade register
data recorded a lower level of defaulted transactions, adding weight to
the hypothesis that trade finance transactions enjoy a lower than
average likelihood of default. For medium and long term Export Credit
Agency (ECA) backed transactions, a similarly relative low risk is
observed.
The ICC Trade Register contains data reflecting no less than 60 - 65%
of traditional global trade finance activity, worth approximately US$ 2
- 2.5 trillion. Data reveals fewer than 1,800 defaults had been made
across close to 8.1 million short-term trade finance transactions. This
equates to an approximate 0.02% default rate on a transaction basis.
Consolidating the volume of trade and export finance and the likelihood
of default for trade and export finance products, the ICC Trade Register
has been vital in crafting fair regulations necessary for a
well-functioning global trading and banking system.
"The ICC Trade Register has been instrumental in fostering dialogue
with regulators on a global scale. The integrity of the data has been
proven and was a strong incentive for other banks to participate," said
Director General, World Trade Organization Pascal Lamy.
KahChye Tan, Chair of the ICC Banking Commission and Global Head of
Trade and Working Capital at Barclays said: "I hope that by focusing on
the critical connections between default levels in trade, finance and
the shaping of new regulatory recommendations, decision makers would be
able to engage collectively in efforts to improve the global financial
system's overall resilience."
Financial regulations require a solid understanding of the critical
issues by all sides, government, regulatory, industry and multilateral
institutions. Global Risks, Trade Finance 2013, is an indispensable tool
for both policymakers and financial executives. Because of the scale and
speed of regulatory change is unprecedented, the information and
analysis provided has been essential to closely monitor and manage risks
in the sector. The report would enable institutions to better understand
the level of risks involved for different trade finance products and
allow banks to benchmark their activities in a more rigorous fashion.
"For the first time, medium and long term export finance data had
been collected and analysed for the 2013 register, improving the overall
data availability and composition. We are also now seeking a full
methodological and terminological alignment with regulator's
perspectives on risk and terminology," said Thierry Senechal, Executive
Secretary, ICC Banking Commission. "With data volume and quality
increasing year-on-year as a result of the increasing number of
participating banks, the ICC Banking Commission would continue to work
with participating banks to support the register and ensure its
continued improvement."
Demand for further data that could provide a complete portrait of the
trade and export finance sector, is expected to increase over the next
15 years as global trade is poised to grow substantially. Given that a
rebound in world trade is essential to propel the continued recovery of
the global economy, this need is made all the more urgent.
"Empirical data is essential and ICC's Trade Register is a big step
in the right direction," said Daniel Cotti, Global Trade Executive at
J.P. Morgan and Vice-Chair of the ICC Banking Commission Advisory Board.
Global Risks' Trade Finance 2013 was released today at a major
gathering of banking industry representatives taking place in Lisbon
from April 15-19, hosted by the ICC Banking Commission ? the world's
essential rule-making body for the banking industry.
With 80 years of experience and more than 600 members in over 100
countries, the commission has gained a reputation as the most
authoritative voice in the field of trade finance. |