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May 13

Why banks are still wary of financing trade

Posted by the Benche in treasurytrade finance, trade, recoveryrecessionfinancingeconomyCashBanksBanking

the Benche

Republished from the Benche, a financial community for corporate treasurers.

The International Chamber of Commerce has released the findings of their survey titled "Rethinking Trade Finance 2010" that sheds some light on this issue.

In total 161 banks in 75 countries participated in the survey, which was commissioned by World Trade Organization's Expert Group on Trade Finance to track the developments in the industry.

The report reveals some interesting findings:

  • Trade volumes is down with 12 percent in 2009 (sharpest decline since WW II).
  • 84 percent of the respondents expect an increased demand for trade finance products this year.
  • Even though 96 percent of the respondents indicated that the level of losses from traditional trade products were the same or lower compared to general banking facilities, banks are still cutting trade lines for corporate and financial institutions.
  • This is due to higher lending costs and risk premiums resulting from rising liquidity pressures, scarcity of capital, increased capital requirements and heightened risk aversion.
  • There is an increase in claiming of discrepancies that have little or no foundation which is worrisome.

A copy of the full report can be found here.

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