Since 2015, the ICC Banking Commission Global Export Finance Committee has served as a globally representative body for banks active in export finance. GTR speaks with the committee’s chair and managing director, global trade finance department at SMBCE, Jonathan Joseph-Horne, about the progress that the committee has made over the last year, and how its focus has shifted to ensure that export finance products remain supportive and relevant in the current challenging environment.
GTR: Have there been any structural changes to the ICC Banking Commission Global Export Finance Committee over the past year?
Joseph-Horne: The committee has continued to evolve. I’m pleased to report that we have some new members, partly as a result of rotations and retirements and partly because of new banks expressing a desire to join the committee. We very much want to grow and diversify the membership and will continue to welcome interest from prospective new members. It is important to the ICC that the committee operates in an open and transparent way and that membership is open to banks that are active in the export finance industry and have an interest in actively contributing to the work for the committee.
We have a couple of specific working groups operating under the main committee and focussing on sustainability, as well as our interaction with trade bodies, such as the Berne Union. The Sustainability Working Group, chaired by Paul Richards of ANZ and Chris Mitman of Investec, has been particularly active over the past 12 months with other industry stakeholders, including a number of export credit agencies (ECAs). As you might expect, there are also very close connections between the Global Export Finance Committee and other ICC committees such as those covering regulation in the trade and export finance markets, chaired by Henri d’Ambrieres; sustainability; and of course the ICC Trade Register, which includes a specific focus on export finance and its default and recovery rates.
GTR: What have been the key areas of focus for the committee over the last year, and how have these changed since the outbreak of Covid-19?
Joseph-Horne: There have been two broad strands of focus over the past year. Firstly, maintaining the momentum on existing workstreams such as regulation, sustainability and interaction with bodies like the Berne Union, and secondly, ensuring the export finance product set is supportive and relevant in the current challenging environment.
I think many market commentators have been impressed with the speed and breadth of response from the ECAs and multilaterals. They responded quickly and with impressive flexibility to the challenges presented by Covid-19 and we are hopeful this positive response will continue as we move towards the recovery phase. We see a very important role for the risk mitigation features of export finance in helping drive economic recovery and feel it is important that flexibility and agility are retained.
It goes without saying that the economic impact of Covid-19 has been far-reaching and has hit some sectors particularly hard. We saw swift action from the agencies towards sectors such as cruise and aviation and also, in many cases, broad forms of economic support that have included working capital and products with a focus on supporting domestic borrowers. It has been clear that ECAs, multilaterals and development banks have responded decisively and with a conviction that their products have a clear role to play. Banks active in this product area will likely agree on the importance of this role.
Within the Global Export Finance Committee, work has continued in important areas such as regulation where, for example, the committee continues to advocate for solutions for the provisioning of non-performing loans that fully reflect the risk characteristics of the loans. Other areas include the ICC Trade Register, where medium and long-term export finance is one of the core areas of focus alongside documentary trade finance and supply chain finance, and where default and recovery data provides very useful insight into the performance of the export finance product. With the impact of the current challenging economic environment yet to be fully felt, the performance of risk mitigation products like export credits will become an even greater area of focus of the industry – and those commentators who watch it.
GTR: Where have the committee’s efforts been focused in terms of Ibor transition, which – when we spoke last year – you identified as being increasingly important?
Joseph-Horne: Ibor transition is an extremely important area for the entire commercial financing world. There are some particular challenges for trade and export finance as these asset classes consider how best to transition away from Ibor rates. Both trade finance and ECA finance have been identified as asset classes that may require the continued use of term forward rates. It is possible to see the logic of how this view can be formed and it is incumbent upon those active in these markets to devise the methodologies for constructing those term forward rates.
The committee is one of a number of bodies which, together with financial institutions and borrowers, has been looking closely at the options that are available both for the use of daily compounding risk-free rates that are in line with most other commercial loans, and the continued use of some form of term forward rate for products and clients that may require it, such as for trade products based on discounting.
While it is fair to say that progress is being made and there is a high degree of focus from within financial institutions and their regulators, it is also true to say that at this point in time there remain a number of possible solutions and methodologies that could be adopted. The Global Export Finance Committee is seeking to ensure that it can reflect market views and, where appropriate, play some role in achieving the positive outcomes that the regulators are focused on reaching. To this end, there is an emphasis on ensuring there is a broad understanding across the industry of the issues, as well as an understanding of the range of potential solutions that can be applied.
GTR: There’s been some talk within the industry about the need for modernisation of the OECD Consensus – especially in light of the various responses to the pandemic – is this an area of focus for the committee, and how do you see this progressing?
Joseph-Horne: Without question, the impact of Covid-19 has highlighted the benefits of flexibility and the positive role that risk mitigation tools can play in initially supporting economies as they face a severe downturn, and then in helping to stimulate economic recovery.
From what we hear, while work continues to take place within the International Working Group (IWG), a finalisation of outcomes is not expected soon, which reinforces an immediate focus on the OECD Arrangement.
The debate surrounding the modernisation of the OECD Arrangement started last year when nobody had any conception of the events that would unfold in 2020 but the principles of modernisation remain just as valid – if not more so – as a result of Covid-19 challenges. The Global Export Finance Committee, together with BIAC and the EBF, continues to actively engage with the OECD on the topic of modernisation and continues to firmly believe in the benefits this would bring to the export finance industry. Our hope, therefore, remains that modernisation, including increased flexibility, can be achieved in time to have a demonstrable impact on supporting economic recovery from Covid-19.
GTR: Last year you identified sustainability as an area of considerable activity for the committee: what have been some of the recent highlights from the sustainability working group? What will be your specific areas of focus moving forward?
Joseph-Horne: You are fully correct, and those high levels of activity have continued into 2020. The Sustainability Working Group, which sits under the Global Export Finance Committee, has undertaken multiple forms of outreach, including with a number of ECAs, and continues to focus considerable effort on establishing definitions and common understandings, exploring a common measurement and identification framework, as well as raising the profile of sustainability within the export finance industry.
The stated objectives of this working group – which were agreed with several ECAs who joined an extended working group meeting earlier in the year – continue to be increasing market awareness that export finance is strongly suited to finance sustainable investments and infrastructure and, through increased awareness, to grow the export finance market’s support of sustainable infrastructure projects.
Looking forward, it is likely that areas of specific focus will include some dedicated work to propose a roadmap which will set out the direction of the export finance industry in the broader sustainable finance landscape, with further engagement with stakeholders, including exporters, borrowers, and a wider group of agencies being a key part of that exercise.