Banking Commission Survey Confirms Trade Finance Supply/demand Imbalance

The International Chamber of Commerce (ICC) Banking Commission has released its 2017 report entitled “Rethinking Trade and Finance”. Based on the Global Survey on Trade Finance – with 255 responses from banks located in 98 countries, as well as insight and commentary from expert contributors – the report is the most comprehensive gauge of the trends and outlook of the global trade finance industry.

Now in its ninth year – 2017’s Survey marks a significant change in both emphasis and presentation. The aim is to provide both enhanced context – highlighting the potential strategic and tactical implications for the industry – and to be more forward looking. The approach is aided by the launch of the new Editorial Board comprising senior specialists and practitioners, supported through contributions from a wider range of partners across global trade.

The Report – emphasising ICC’s and the Banking Commission’s support of open, rulesbased and inclusive multilateral trade – encompasses four major sections of content linked to the pillars of the Banking Commission’s strategy. It focuses on the state of the trade finance market; trade and supply chain finance; policy, advocacy and inclusiveness around global trade; and digitalisation and the state of FinTech. The 2017 Survey’s findings show that:

• Some 61% of banks report more demand than supply for trade finance in the global market. ICC Banking Commission and the Asian Development Bank estimate the level of unmet demand for trade finance stands at over USD1.6 trillion a year – a figure now officially recognised by the United Nations General Assembly.

• Only a minority (21%) see traditional trade finance showing growth in the future. However, overall trade finance revenues have increased, with ICC partner The Boston Consulting Group’s trade finance model (included in the report) predicting revenue growth of around 4.7% a year.

• Over 68% of respondents point to compliance and regulatory requirements as having the highest adverse impact on trade finance in the short-term, while only 11% pointed to capital constraints as a matter of significant

• Some 50% expect most of trade flow processes to be digitised by 2027 – while an almost equal portion expect the evolution to take from 10-25 years. In addition, nearly 44% of respondents identify digitalisation and technology as priority areas of focus – including FinTech and fast-emerging platforms.

• While there is optimism with respect to the digitalisation of trade finance, only 12% of respondents perceive a degree of market uptake and nearly 40% see limited progress in this area – with almost 18% reporting that technical capabilities and technology are ahead of trade finance business practice.

• The discourse around FinTechs is evolving from competition to collaboration, with only 1.4% of respondents viewing the competitive offering of FinTechs as a threat to banks’ positions as the key providers of trade finance.

• More than one-third of respondents consider supply chain finance a high priority and predict significant growth, and over 21% view it as under analysis and consideration.

• Over 57% report an improvement of their operational risk management and reduced error rates, while only 2.7% note a slight deterioration.

• Some 46% identify multinational and large corporates as the highest priority client segment for their trade finance business, with a quarter favouring middle market clients and less than 20% identifying Micro, Small and Medium Enterprises (MSMEs).

• Some 57% of respondents believe traditional trade finance will exhibit little or no growth – while 22% think it will decline outright year-on-year.

• Cost control pressures are considered the biggest challenge facing trade finance units. These are cited by 23% of respondents, followed closely by the availability of specialist skills (21%), and limits posed by traditional technologies (18%).

• The report highlights the key role that correspondent banks play in global trade and economic activity, with IMF data indicating that the volume of correspondent banking relationships grew by almost 30% between 2011 and 2015.

John Danilovich, ICC Secretary General, said of the Survey: “Results of the survey underscore the chronic shortfall of trade finance for small business – as recently recognised by the United Nations. Addressing the trade finance gap must be a central priority for the G20 to deliver on its commitment to support inclusive growth and enhanced job creation.”

Daniel Schmand, Chair of ICC Banking Commission, added: “Championing trade and ensuring access to adequate levels of financing for SMEs is more critical now than ever before. Free trade generates economic growth and jobs across the world, while also maintaining a consistently low risk profile across products.  Taken together, these factors make trade stand out as one of relatively few areas capable of producing positive a global impact through effective policy measures and private sector business initiatives.”

Alexander Malaket, Chair of ICC Banking Commission Market Intelligence, said: “ICC’s and the Banking Commission’s championing of open, rules-based and inclusive “multilateral trade is supported by the Report, which now includes the explicit intent to provide editorial context and to be forward looking. Thanks to the dedicated work of our Editorial Board, the latest edition of the Report builds on our strong tradition of quality analysis, global collaboration and effective advocacy in support of international trade and trade financing.”

The International Chamber of Commerce (ICC) Banking Commission has released its 2017 report entitled “Rethinking Trade and Finance”. Based on the Global Survey on Trade Finance – with 255 responses from banks located in 98 countries, as well as insight and commentary from expert contributors – the report is the most comprehensive gauge of the trends and outlook of the global trade finance industry.

Now in its ninth year – 2017’s Survey marks a significant change in both emphasis and presentation. The aim is to provide both enhanced context – highlighting the potential strategic and tactical implications for the industry – and to be more forward looking. The approach is aided by the launch of the new Editorial Board comprising senior specialists and practitioners, supported through contributions from a wider range of partners across global trade.

The Report – emphasising ICC’s and the Banking Commission’s support of open, rulesbased and inclusive multilateral trade – encompasses four major sections of content linked to the pillars of the Banking Commission’s strategy. It focuses on the state of the trade finance market; trade and supply chain finance; policy, advocacy and inclusiveness around global trade; and digitalisation and the state of FinTech. The 2017 Survey’s findings show that:

• Some 61% of banks report more demand than supply for trade finance in the global market. ICC Banking Commission and the Asian Development Bank estimate the level of unmet demand for trade finance stands at over USD1.6 trillion a year – a figure now officially recognised by the United Nations General Assembly.

• Only a minority (21%) see traditional trade finance showing growth in the future. However, overall trade finance revenues have increased, with ICC partner The Boston Consulting Group’s trade finance model (included in the report) predicting revenue growth of around 4.7% a year.

• Over 68% of respondents point to compliance and regulatory requirements as having the highest adverse impact on trade finance in the short-term, while only 11% pointed to capital constraints as a matter of significant

• Some 50% expect most of trade flow processes to be digitised by 2027 – while an almost equal portion expect the evolution to take from 10-25 years. In addition, nearly 44% of respondents identify digitalisation and technology as priority areas of focus – including FinTech and fast-emerging platforms.

• While there is optimism with respect to the digitalisation of trade finance, only 12% of respondents perceive a degree of market uptake and nearly 40% see limited progress in this area – with almost 18% reporting that technical capabilities and technology are ahead of trade finance business practice.

• The discourse around FinTechs is evolving from competition to collaboration, with only 1.4% of respondents viewing the competitive offering of FinTechs as a threat to banks’ positions as the key providers of trade finance.

• More than one-third of respondents consider supply chain finance a high priority and predict significant growth, and over 21% view it as under analysis and consideration.

• Over 57% report an improvement of their operational risk management and reduced error rates, while only 2.7% note a slight deterioration.

• Some 46% identify multinational and large corporates as the highest priority client segment for their trade finance business, with a quarter favouring middle market clients and less than 20% identifying Micro, Small and Medium Enterprises (MSMEs).

• Some 57% of respondents believe traditional trade finance will exhibit little or no growth – while 22% think it will decline outright year-on-year.

• Cost control pressures are considered the biggest challenge facing trade finance units. These are cited by 23% of respondents, followed closely by the availability of specialist skills (21%), and limits posed by traditional technologies (18%).

• The report highlights the key role that correspondent banks play in global trade and economic activity, with IMF data indicating that the volume of correspondent banking relationships grew by almost 30% between 2011 and 2015.

John Danilovich, ICC Secretary General, said of the Survey: “Results of the survey underscore the chronic shortfall of trade finance for small business – as recently recognised by the United Nations. Addressing the trade finance gap must be a central priority for the G20 to deliver on its commitment to support inclusive growth and enhanced job creation.”

Daniel Schmand, Chair of ICC Banking Commission, added: “Championing trade and ensuring access to adequate levels of financing for SMEs is more critical now than ever before. Free trade generates economic growth and jobs across the world, while also maintaining a consistently low risk profile across products.  Taken together, these factors make trade stand out as one of relatively few areas capable of producing positive a global impact through effective policy measures and private sector business initiatives.”

Alexander Malaket, Chair of ICC Banking Commission Market Intelligence, said: “ICC’s and the Banking Commission’s championing of open, rules-based and inclusive “multilateral trade is supported by the Report, which now includes the explicit intent to provide editorial context and to be forward looking. Thanks to the dedicated work of our Editorial Board, the latest edition of the Report builds on our strong tradition of quality analysis, global collaboration and effective advocacy in support of international trade and trade financing.”