Global Business Intelligence Completes First Benchmark of Basel II Capital Allocations for Trade Finance

Global Business Intelligence (GBI) has completed the first trade capital benchmark with leading European and North American banks to benchmark capital allocation. At a time when banks are focused on raising and managing capital, the economy continues to demand trade credit to keep business flow moving.

For the eleven banks that participated, significant differences appeared for capital reserved under Basel II for both corporate and financial institution trade finance transactions. For corporate transactions, Basel II reserves ranged from US$5.2m in capital to US$12.9m for a US$170m portfolio of trade transactions. For financial institution transactions, the range was US$2.5m to US$8.1m for a US$140m trade portfolio.

Data revealed Basel II continues to be a major problem in the trade finance community as it sucks out what capital is available to support trade credit. The perception exists that many banks are not lending because Basel II is punitive to the trade business and this comes at a time when regulators, investors, and rating agencies are forcing banks to increase capital ratios.

David Gustin, president of GBI, commented, “Banks need a systematic approach to compare their capital allocations, which are so critical to trade finance pricing, particularly at the non-investment grade spectrum. Due to the unavailability of relevant data covering realised losses for trade transactions, comparing bank data can be very helpful. Although banks have started gathering such information in recent years, it is both not publicly available and very difficult to obtain on a comparative basis.”

GBI undertook this benchmark to help banks understand the consensus of the market to compare if their own model outputs are above, at, or below the market for capital for each transaction and for the overall portfolio. Each bank calculated capital reserves and loss given default (LGD) percentages based on their models for a hypothetical trade finance portfolio. GBI plans to conduct this again on a quarterly or semi-annual basis to develop longitudinal analyses.


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