International Chamber of Commerce affirms trade finance’s decade-long low-risk profile
– In 2018, global trade reached a new peak of US$18.5 trillion, underpinning a trade finance revenue pool of US$48bn.
– ICC Trade Register data confirms default rates from 2008-2018 are low across all products and regions surveyed.
– For the first time, payables finance and non-OECD Export Credit Agency-backed export finance products are included in the Trade Register.
The International Chamber of Commerce (ICC) Banking Commission has released its 2018 Trade Register report – again highlighting the low risk nature of trade finance in comparison to other asset classes.
This year’s report captures a full decade of trade finance-related data – containing over US$12trn of exposures from 24 million transactions across six products and 25 banks worldwide.
Results indicate that default rates from 2008-2018 are low across all products and regions, averaging 0.37% for Import Letters of Credit (L/Cs), 0.05% for Export L/Cs, 0.76% for Loans for Import/Export, and 0.47% for Performance Guarantees (when weighted by obligors). The results extend the decline in risk seen in 2016 into 2017, likely driven by strong GDP growth and the general de-risking approach taken by banks with regards to their balance sheets.
As in previous years, the report was conducted with the support from both Global Credit Data (GCD) and Boston Consulting Group (BCG). BCG, for its part, contributed a strategic perspective to the paper, including insights from their 2019 Trade Finance Model.
Meanwhile, ICC worked alongside GCD to advance the Trade Register’s scope and methodology. Leveraging GCD’s experience, the project now uses automatic data validation at point-of-entry – adding to the reliability of data and simplifying the data collection process for member banks.
This year’s data set also includes non-OECD Export Credit Agency-backed export finance and, given its growing and now longstanding significance across all markets, supply chain finance (SCF).
In its inaugural year, the SCF data set, while relatively small, provides initial indications that the probability of default for SCF is similar to other short-term trade finance products.
“This year’s report reinforces the findings of previous years’ studies: trade finance products present banks with low levels of credit risk,” says Daniel Schmand, chairman of the ICC Banking Commission. “This further supports the favourable treatment of trade finance as an asset class by the Basel Accords and increases the attractiveness of trade finance to banks, benefiting global trade and widening market access.”
Going forward, the ICC Trade Register will continue to build bank participation, data quality, product scope and the types of risk examined, to best serve the trade finance community, and – importantly – its member banks who invest significant time and resources to support the project.
Krishnan Ramadurai, chairman of the ICC Trade Register Project, adds: “The ability to act as a uniform source of data for Banks will help the Trade Register to further strengthen its fundamental role in putting advocacy messages to the Basel Committee and other regulatory bodies.”