ICC Lauds Economic Contribution, Low Risk of Trade and Export Finance

Trade and export finance is a low risk bank financing technique but one that strong contributes strongly to economic recovery and growth, says the International Chamber of Commerce (ICC).

In its
‘Trade Register Report 2014’
, the ICC adds that this evidence can potentially alter attitudes towards trade finance, and therefore contribute to the growth of both global trade and the global economy

Based on data contributed by major global commercial banks and reflecting more than 4.5m transactions totalling an exposure in excess of US$2.4 trillion, the latest edition of the report, first launched in 2009, “empirically demonstrates that trade finance is lower risk than many other types of financing and assets”, the ICC claims.

It records that short-term trade finance customer default rates range from a low of 0.033% to a high of 0.241%, which is a fraction of the 1.38% default rate reported by Moody’s for all corporate products (according to 2012 figures).

Other report findings to demonstrate the low risk nature of both short-term, and medium- to long-term trade finance are that short-term trade finance (with an average contractual tenor between 90-180 days) customer default-rates for 2008-12 were 0.033% for export letters of credit (L/Cs), 0.117% for import L/Cs, 0.157% for performance guarantees, and 0.241% for loans for import/export.

For medium-long term export loans included in the trade register – where an export credit agency (ECA) has provided either state-backed guarantee or insurance to the financing bank – the expectation is that losses will be very low unless the ECA itself defaults, which is typically considered remote as the loans are government-sponsored and the ECAs generally have investment-grade ratings.

“In terms of data, this year’s report is the most robust and relevant to date, and is better aligned with the Basel methodology,” said Alexander Malaket, co-chair of the ICC trade register project and member of ICC Banking Commission executive committee.

“Given this, the trade register will continue to evolve and to advance informed, objective dialogue with regulators and other important stakeholders, who are paying close attention to our findings.”

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