The 10th edition of the International Chamber of Commerce (ICC) Banking Commission’s trade register report has confirmed, once more, the low-risk nature of trade finance versus other asset classes.

The 2018 version of the report, created with support from Global Credit Data (GCD) and Boston Consulting Group (BCG), analysed over US$12tn of exposures from 24 million transactions across six products and 25 banks worldwide.

It found low default rates across all products and regions, averaging 0.37% for import letters of credit (LCs), 0.05% for export LCs, 0.76% for loans for import or export, and 0.47% for performance guarantees. These figures have been declining since 2016, which the ICC Banking Commission says is likely driven by strong GDP growth and the general de-risking approach taken by banks with regards to their balance sheets.

“This year’s report reinforces the findings of previous years’ studies: trade finance products present banks with low levels of credit risk,” says Daniel Schmand, chair of the ICC Banking Commission. “This further supports the favourable treatment of trade finance as an asset class by the Basel Accords and increases the attractiveness of trade finance to banks, benefiting global trade and widening market access.”

The 2018 trade register report, which contains data up until the end of 2017, includes for the first time payables finance, to reflect the shift in trade financing from documentary trade towards open account terms. It also now includes non-OECD export credit agencies (ECAs) for export finance products, reflecting the growing role of non-OECD arrangement ECAs in financing international trade.

“The supply chain finance (SCF) data set, while relatively small, provides initial indications that the probability of default for SCF is similar to other short-term trade finance products,” the report says.

The ICC has long been vocal about its concerns over regulation and the unintended impact it is having on trade. Speaking recently to GTR, Olivier Paul, director of finance for development at the ICC said: “We need fair treatment of trade finance transactions. Regulators have to take into account the reality of the business, how it works, what the level of risk is, and what the level of exposure is that the different actors are taking in a set transaction.” The latest survey can be viewed as a further effort to persuade regulators of the extent to which trade finance deserves to be viewed differently to other sorts of financial transactions.

“As the final rules published by the Basel Committee in December 2017 are being translated into local jurisdiction-specific rules and regulations for implementation in 2020, the Trade Register Report and our advocacy programme are increasingly critical and relevant for trade products to receive the appropriate capital treatment they deserve,” says Krishnan Ramadurai, chair of the trade register project.