Banking & finance
ICC Trade Register: trade defaults rise amid pandemic, but performance remains consistent with long term projections
ICC, along with Boston Consulting Group (BCG) and Global Credit Data (GCD), has released its 2021 Trade Register report, confirming the impact of the COVID-19 pandemic on global trade finance default rates.
The COVID-19 pandemic has produced significant impacts on global trade, driving a c. 10% drop by value in 2020, comprising a c. 8% fall in goods trade and a substantial steeper c. 19% in services trade. Over a year into the COVID-19 pandemic, its sustained consequences are becoming clearer, both from an activity perspective – where we expect trade volumes to reach 2019 levels by 2022 after a constrained recovery in 2021 – as well as from a credit risk performance perspective .
The ICC Trade Register continues to be the global authoritative source for default rates in trade and supply chain finance with its exclusive data set representing c. 30% of all global trade finance transactions. For 2020, the report confirmed an increase in default rates across the majority of asset classes:
- Import L/Cs: Obligor-weighted default rate increased from 0.40% in 2019 to 0.59% in 2020 (+0.19 ppts.)
- Export L/Cs: Obligor-weighted default rate increased from 0.04% in 2019 to 0.05% in 2020 (+0.01 ppts.)
- Loans for Import/Export: Obligor-weighted default rate increased from 0.74% in 2019 to 0.94% in 2020 (+0.20 ppts.)
- Performance Guarantees: Obligor-weighted default rate decreased from 0.56% in 2019 to 0.44% in 2020 (-0.12 ppts.)
Encouragingly, the report observes that no asset class recorded default rates above the peak historic rates, affirming the relative stability of trade finance even in times of economic stress.
ICC Secretary General John W.H. Denton AO said: “Access to cost-effective trade credit is of vital importance to millions of small businesses across the world. We hope that the continued evolution of the ICC Trade Register will enable a collaborative dialogue with governments to rethink the regulatory treatment of this essential asset class – in a way that unlocks fresh capital for entrepreneurs, without risking the stability of the financial system.”
Lynn Ng, Chair of the ICC Banking Commission said: “In an increasingly data-driven world, the role and relevance of the ICC Trade Register is clear. I encourage peers in the industry to actively use this report, and to contribute to its future editions, as this is one data set that provides clear evidence that there is low default in trade through the economic cycles.”
From this year onward, the ICC Trade Register is moving to a new commercial model to better incentivise banks to contribute valuable insights to the data pool. A summarised public version of the report is now available free-of-charge, with the full report and data available to purchase for a fee, improving the value proposition for Member Banks and growing the ICC Trade Register’s comprehensive data set to accurately capture the ever-changing characteristics of global trade.