Trade defaults rise due to COVID-19 but overall performance not significantly out of line with longer-term range

Preliminary analysis of the data for these assets has identified an increase in defaults across most trade finance products in 2020, which is likely at least in part attributable to the effects of the COVID-19 pandemic on economic activity – and related shifts in demand and supply.

However, whilst 2020 default rates are higher than recent years, they are not significantly out of line with the average default rates reported by the Trade Register over the 14-year period for which data has been collected.

The factors behind the performance of trade assets in 2020 will be explored in detail by this year’s ICC Trade Register report, including an analysis of the likely “cushioning” impact of government economic support – such as, emergency state-backed lending.

At product level, a number of initial trends have been identified:

• Import L/Cs: an observed increase in 2020 default rates appears skewed towards small and medium enterprises (“SMEs”). Obligor-weighted default rates overall rose by 40-50% versus the prior year – compared to more modest rises for transaction- and exposure-weighted default rates.
• Export L/Cs: an increase in default rates is observed against prior years across all methodologies, likely influenced by one-off idiosyncratic defaults. Nevertheless, overall default rates for Export L/Cs continue to remain very low relative to other trade finance products.
• Loans for Import / Export: it appears that increases in default rates were driven primarily by two or three large corporate exposures with a number of transactions across a cross-section of banks reporting data to the ICC Trade Register.
• Performance Guarantees: default rates appear relatively flat, potentially influenced in part by contracting parties extending tenors due to the unprecedented nature of the crisis.
• Supply Chain Finance: it appears that default rates have risen, driven primarily by an increase in smaller entity defaults across several regions, and potentially also the result of improved data coverage of Supply Chain Finance (SCF) exposures in the ICC Trade Register over time

Meanwhile, 2019 presented a more mixed picture, with the moderate increases across the portfolio vs. prior years likely driven by SME defaults – potentially indicating an emerging downturn in the economic cycle prior to the pandemic.

ICC has noted that these headline findings are based on an initial analysis of a partial data set – and, as such, should be treated with a degree of caution. ICC, BCG, and GCD teams are in the process of finalising and validating data submissions from member banks, with a view to publishing the final ICC Trade Register report in early September 2021.

A new operational model for the ICC Trade Register

Following consultation with member banks, ICC has also announced a change to the operating model of the initiative, in order to: (i) better differentiate its offering to members of the Trade Register; (ii) encourage more banks to submit data to; and (iii) ensure the long-term commercial viability of the programme.

The key details of the changes are as follows:

• Participating member banks will receive enhanced outputs, including more granular data returns, dashboards, etc.
• Access to the detailed Trade Register Report will be made chargeable for non-participants (e.g. investors, non-member banks); a highly summarised (global default rates by product only) report will continue to be available publicly free of charge.
• Pricing will be differentiated according to the size and nature of non-participants (e.g. commercial organisations vs. NGOs vs. academic / research institutions)
• A summary of the new model and respective charges is provided below

	Member banks (participants)	Other banks	Large investors and non-banks (>€50m revenues)	Small investors and non-banks (<€50m revenues)	Academics (ICC recognised) & regulators	Associations and non-profits (ICC recognised)	Public (open release)
Fee	Up to €15,000[1] (unchanged)	€40,000	€40,000	€20,000	No charge (to be agreed on case-by-case basis)	€2,500	No charge
Contents	Detailed PDF report   Granular data tables and charts   Interactive dashboard / benchmarks	Detailed PDF report   Granular data tables and charts	Aggregated global results – by product only (1-2 page PDF)

For more information on the ICC Trade Register 2020, including any questions on the new commercial / operating model, please reach out to: Andrew.WILSON@iccwbo.org and Tomasch.KUBIAK@iccwbo.org.

[1] Total fees payable dependent on product participation