Released today, the International Chamber of Commerce (ICC) Trade Register Report 2014provides empirical evidence that, in all forms, trade and export finance is a low risk bank financing technique – further supporting ICC’s advocacy of trade finance as a strong contribution to economic recovery and growth. This evidence has the potential to alter attitudes towards trade finance, and therefore contribute to the growth of both global trade and the global economy
Based on data contributed by the major global commercial banks and reflecting more than 4.5 million transactions, the ICC Trade Register Report 2014 (“the Trade Register”) empirically demonstrates that trade finance is lower risk than many other types of financing and assets. 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).
First launched in 2009 by ICC’s Banking Commission, the report is widely recognized as one of the world’s leading analytical reports on global risks for the trade finance industry—identifying risks across a range of trade finance products and markets.
The report offers those involved in trade—whether in business, finance, government or multilateral institutions—a tool for understanding the risks, which should support liquidity and the regulatory oversight of the technique. Around 80-90% of cross-border trading activity relies on some form of trade finance, making the regulatory treatment of instruments such as letters of credit (L/Cs) and pre-export finance vital for the health of the world’s economy. In fact, it was the market’s concern that the regulatory requirements were subjecting trade finance to disproportionately stringent capital-adequacy standards that encouraged ICC’s Banking Commission, through an initial partnership with the Asian Development Bank, to initiate the Trade Register. Those same concerns underpin ICC’s on-going engagement in this initiative, to empirically support what had previously been only anecdotally known: that trade finance is a low risk asset class for lenders.
The findings of ICC’s Trade Register therefore have the potential to transform trade, and—by association—open up trade finance as a lubricant for economic growth. By demonstrating trade finance is low risk—not just anecdotally, or theoretically, but through data gathered from the major global commercial banks—the Trade Register not only acts as a vital tool for both policymakers and financial regulators, it encourages lenders to finance trade activity in the developed and emerging economies, and for both the short- and medium-term. As such, the report could encourage economic recovery and value-creation, as well as enable SME growth, international development and, therefore, the engagement of emerging markets.
“The intention of the Register was to progress the understanding of trade finance, its importance to global trade and its highly-effective risk mitigation capabilities,” explained Kah Chye Tan, Chair of ICC Banking Commission. “The impact of the Register, however, is much greater. As the latest results show, the Register provides concrete fact-based evidence that trade finance is low risk which, if fully reflected in capital requirements, would help banks to give companies the financing support they need for their exports, and to contribute even further to the global economy as it recovers from the global financial crisis.”
The report demonstrates the low risk nature of both short-term, and medium- to long-term trade finance. Short-term trade finance (with an average contractual tenor between 90-180 days) customer default-rates for 2008-12 were 0.033% for export L/Cs, 0.117% for import L/Cs, 0.157% for performance guarantees, and 0.241% for loans for import/export. Meanwhile, the report explains that for medium-long term export loans included in the Trade Register.The expectation is that losses will be very low unless the ECA itself defaults, which is typically considered remote.
“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. ICC’s Trade Register and its annual report are now widely recognized as a comprehensive analysis on global risks for the trade finance industry.”
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For additional information, please contact:
Dawn Chardonnal, ICC +33(0)1 49 53 29 07
Leela Shanson, Moorgate Communications Ltd. +44 (0) 20 7377 4992
Notes to editors:
ICC Trade Register comprises a membership of 26 international banks. It allows the industry, regulators and stakeholders to plot accurately the risks involved in both short- and medium-long term trade and export finance transactions. The data and analysis that flows from the ICC Trade Register project has contributed to a greater visibility and understanding of the favourable risk profile of trade finance, and has assisted in assuring more equitable treatment of trade finance from regulatory authorities.
ICC is the largest, most representative business organization in the world. Its global network comprises over 6 million companies, chambers of commerce and business associations in more than 130 countries, with interests spanning every sector of private enterprise.
Founded in 1931, the ICC Banking Commission has evolved into the world’s essential rule-making body for the banking industry. The ICC Banking Commission produces universally accepted rules and guidelines for international banking practice. ICC rules on documentary credits, UCP 600, are the most successful privately drafted rules for trade ever developed, serving as the basis of US$2 trillion trade transactions a year. In addition, the ICC Banking Commission is helping policymakers and standard setters to translate their vision into concrete programmes and regulations to enhance business practices throughout the world. In recent years, the ICC Banking Commission has been active in producing guidance on issues of financial crime risk and prudential reforms. With more than 80 years of experience and more than 600 members in over 100 countries, the ICC Banking Commission has rightly gained a reputation as the most authoritative voice in the field of trade finance.
About The International Chamber of Commerce (ICC)
ICC is the largest, most representative business organization in the world. Its global network comprises over 6 million companies, chambers of commerce and business associations in more than 130 countries, with interests spanning every sector of private enterprise.
A world network of national committees keeps the ICC International Secretariat in Paris informed about national and regional business priorities. More than 2,000 experts drawn from ICC’s member companies feed their knowledge and experience into crafting the ICC stance on specific business issues.
The United Nations, the World Trade Organization, the G20 and many other intergovernmental bodies, both international and regional, are kept in touch with the views of international business through ICC.
