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-regulated 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 were 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 is vital to 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 is proven and is a strong incentive for other banks to participate,” said Pascal Lamy, director general of the World Trade Organization.
Kah Chye 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 will be able to engage collectively in efforts to improve the global financial system’s overall resilience.”
Read more, and download a copy of Global Risks – Trade Finance 2013, on the ICC website.
Staff contact: Eva Hampl