Confidence in trade finance remains fragile, reveals new survey by the ICC

New survey results released by the International Chamber of Commerce (ICC) have exposed the trade finance (TF) industry’s mixed views on prospects for a strong and lasting trade recovery.

The survey, titled Rethinking Trade Finance 2010, highlights potential impediments to trade recovery, with constrained access to affordable trade finance, trade protectionism and the tougher capital requirements that face banks all being cited as problem areas.

In total, 161 banks from over 70 countries were surveyed on behalf of the World Trade Organisation’s export group on trade finance, in order to track developments in the industry.

Almost two-thirds of respondents indicated that TF activity had decreased between 2008 and last year, with 43% of financial institutions reporting a decrease in the volume of export letters of credit (LC), down from 47% of those surveyed reporting the same thing in the 2009 survey.

Just over a quarter of banks questioned saw a decrease in import LC’s, with slightly more than half claiming that there was no change in the volume since 2008.

A decreased volume in LCs was worsened by an increase in fees for commercial LCs, standbys and guarantees, an issue that 30% of institutions surveyed had to contend with.

The increased fees were attributed to higher funding costs, heightened capital constrains and greater counterparty risk.

Furthermore, the intense scrutiny of documents by banks was in the spotlight, with 34% of respondents claiming that they had seen an increase in the number of refusals for TF, up 4% from last year.

However, the scrutiny may be well placed, as the number of doubtful or false documents remained high, with almost half of respondents, 44%, indicating that they had experienced such cases.

The survey also described a 12% drop in volume of trade last year, the sharpest decline since World War II and adds: “The 2010 survey has confirmed that the current global financial crisis has continued to affect financial institutions and markets worldwide. This is a challenging economic environment and trade volumes may be further impacted in the coming months.

The survey also mentions the “cautious” outlook for the near future: “On a global basis, the predictions for 2010-2011 remain cautious; many expect that the economic turmoil will continue to predominate.”