Now in its fifth year, The International Chamber of Commerce (ICC) Banking Commission’s Trade Register – which includes 13 million transactions from 2007-14, and encompasses a total exposure of over US$ 7.6 trillion – has been released today, highlighting the low risk nature of trade finance.
In particular, it shows that Short Term (ST) trade finance has default rates that only reach, on average, one fifth of comparable Moody’s default rates. The Moody’s default rate across 2008-14 in the investment grade rating universe was 0.11%. By comparison, the Trade Register shows that the exposure weighted default rate for export letters of credit (LCs) was 0.02% over the same period, and the transaction default rate for export LCs was as low as 0.01%. Even the default rate for ST loans for import/export, which is the highest across any of the products, was 0.06%.
The 2015 Trade Register also suggests that Medium- to Long- Term (MLT) trade finance is low risk. The default rate for MLT transactions is less than 50% of the default rate of comparable Moody’s corporate credit portfolio, and the Export Credit Agency (ECA) coverage that backs MLT products further contributes to their low risk.
The Trade Register remains one of the most comprehensive, widely accepted and referenced source of default and credit risk data in the world today.
“The Trade Register remains one of the most comprehensive, widely accepted and referenced source of default and credit risk data in the world today,” said Alexander R. Malaket, Deputy Head of the Executive Committee, ICC Banking Commission. “The 2015 Trade Register clearly demonstrates the low risk nature of trade finance. What’s more, the Trade Register also highlights the strong recovery rates for trade finance – with the median result for ST and MLT (through the support of ECAs) trade finance included in the Register close to 100% recovery for all products.”
“Year on year the Trade Register improves its data sample and observes more transactions – making this the most comprehensive, and perhaps the most significant, to date,” said Daniel Schmand, chair of the ICC Banking Commission. “Additionally, the increased alignment with Basel methodology will play a key role in underpinning fact-based dialogue with industry stakeholders and regulatory authorities.”
The Trade Register also highlights that political risks – and associated sanctions – can have significant effects on default rates for MLT products. Where transactions related to the Ukraine, Kazakhstan and Iran were excluded from the overall sample, the overall transaction default rate from 2007-14 fell from 0.71% to 0.46% for all transactions, and from 1.43% to 0.17% for financial institutions.
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