ICC response to Basel announcement on trade finance

Thursday, 27 October 2011 02:57 - - {{hitsCtrl.values.hits}}

The International Chamber of Commerce (ICC) this week said it was pleased that the Basel Committee on Banking Supervision has announced measures that recognise trade finance as a low-risk activity for banks.

It said that there is opportunity to further refine the rules to foster the development of trade and the support of SME clients. The ICC asserts that treating trade finance as a unique asset class to accurately reflect its low risk will help foster more trade and create jobs. The ICC’s Banking Commission Chair, Kah Chye Tan, said: “It is crucial that the cost of capital between a low-risk, low-margin activity like trade finance is differentiated from higher-risk, higher-margin activity. We have narrowed the gap today and there is an opportunity for us to do more through continuing dialogue. We believe that banks and Basel have the responsibility to develop a robust banking environment to create jobs through trade.”

ICC released its second annual report detailing default and loss history on trade finance, proving empirically that trade finance is a low-risk banking activity and therefore should be treated accordingly for regulatory purposes.

Data provided by 14 of the world’s largest commercial banks on over 11 million trade finance transactions – representing over $2 trillion in trade – going back over five years, including over the global financial crisis, showed only 3,000 defaults. The data covers over 65% of the world’s trade finance transactions.

The data shows similar results to the first ever statistics in trade finance default and loss rates, which was developed by ICC in conjunction with the Asian Development Bank and nine commercial banks in 2010.

Kah Chye went on to say: “We trust the Basel committee will find ICC’s new report useful, and that based on this data Basel will take further measures to support trade and job creation by treating trade finance appropriately.”

ICC has welcomed the privileged relationship which has been established with the Basel committee over the last years and proposes to continue discussions on the implementation and impacts of the recommendations.