ICC 2011GlobalSurvey

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2011ICC Global Survey on Trade and Finance

Trade and nancial markets

development 2009-2010

Routes to recovery:

a regional perspective

Impacts o the regulatory

regime on trade and nance

Market outlook

RethinkingTrade and

Finance


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Rethinking Trade & Finance:Global Survey 2011

Editor

Thierry Senechal

Senior Policy Manager, International Chamber o Commerce

Steering Committee

Gary Collyer

Senior Technical Advisor, ICC Banking Commission

Leo CullenPartner, Coastline Solutions

Vincent OBrien

Chair, ICC Banking Commission Market Intelligence Group

Production Manager

David Bischo

Natalie Montelongo

Copy Editor and Prooreader

Ron Katz

Design and production

Rebus

Produced in March 2011

Copyright 2011

International Chamber o Commerce

All rights reserved. ICC holds all copyright and other intellectual

property rights in this collective work. No part o this work may be

reproduced, copied, distributed, transmitted, translated or adapted

in any orm or by any means graphic, electronic or mechanical,

and including without limitation, photocopying, scanning, recording,

taping, or by use o computer, the internet or inormation retrieval

systems without written permission o ICC through ICC Services,Publications Department.

ICC Global Survey on Trade & Finance is a registered trademark

o the International Chamber o Commerce.

ICC Services

Publications

38 Cours Albert 1er

75008 Paris

France

ICC Publication No. 710E

ISBN: 978-92-842-0100-6

www.iccbooks.com


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Acknowledgements

The ICC Survey would not have been possible without the pathnding work done

during 2007-2011 by the ICC Banking Commission. We would like to thank Gary

Collyer, Senior Technical Adviser o the Banking Commission; Vincent OBrien, Chair o

the ICC Market Intelligence Group; and Leo Cullen o Coastline Solutions or their timely

inputs to this report. Ron Katz, the Editor o ICCs quarterly newsletter, DCInsight, has

reviewed the document with great care and made numerous valuable suggestions.

We would like to express our gratitude to ICCs network o 92 national committees

or providing inormation and advice to lead us through the oten-complex process o

conducting such a global survey.

The present report depended on the support o various experts rom organizationsoutside ICC. Marc Auboin o the World Trade Organization was instrumental in

requesting that this Survey be established. We would like to extend our special thanks

to our partners in this Survey: Jean-Pierre Chauour and Mariem Malouche o The

World Bank Group; Steven Beck o the Asian Development Bank; Ghazi Ben Ahmed o

the Arican Development Bank; Rudol Putz o the European Bank or Reconstruction

and Development; Bonnie Galat and H. Scott Stevenson o the International Finance

Corporation; and Daniela Carrera Marquis o the Inter-American Development Bank.

Andr Casterman o SWIFT once again graciously provided background inormation

and contemporaneous data on trade nance messaging volumes worldwide on an

exclusive basis. Fabrice Morel rom the Berne Union provided the much-needed

analysis on credit insurance.

We would like to thank three leading experts or providing their industry outlook:

Kah Chye Tan, Global Head o Corporate Cash and Trade, Standard Chartered Bank

and Chairman o the Banking Commission; John Ahearn, Managing Director, Global

Head o Trade, Global Transaction Services, Treasury and Trade Solutions Group,

Citibank; and Daniel Cotti, Head o Global Trade, JPMorgan Chase.

More than ever, we renew our thanks to ICCs technology partner, Coastline Solutions,

or compiling the online Survey.

The International Chamber o Commerce (ICC) thanks its partners and sponsors

or their support in the preparation o this Survey


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Rethinking tRade & Finance: icc global SuRvey20114

Contents

Acknowledgements 3

List o gures 6

List o acronyms 7

Foreword 9

Introduction 10

Executive summary 13

An industry outlook on the recovery 18

Section 1 Background and methodology 21

Purpose and scope o ICC Survey 2011 21

Methodology outline and timetable 21

Participation in ICC Survey 2011 22

Section 2 World economy: Expectations point to recovery 24

The great trade collapse and recovery a quick overview 24

An improvement in the world economic climate 25

Changes in growth patterns: recovery is more broadly distributed 25

Some sectors have been hit harder 26

Continued commitment to keep markets open 27

Support to trade nance in low-income countries must continue 27

Section 3 Trade nance statistics: Global and regional trends 29

Trade is rebounding 29

Trade nance demand 31

Aordability o trade nance 31

Operational impacts 32

SWIFT trade trac analysis 34

SWIFT regional analysis 38

Special SWIFT insights on developing countries 41


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Section 4 A regional ocus rom the multilateral development banks 43

Overview 43

The European Bank or Reconstruction and Development (EBRD) 43

The Inter-American Development Bank (IDB) 47

The International Finance Corporation (IFC) 51

The Asian Development Bank (ADB) 54

The Arican Development Bank (ADB) 56

Interview with Gazi Ben Ahrmed (ADB) 56

Multilateral investment banks: Conclusion 61

Section 5 Business trends in export credit insurance 61

Insuring risk to sustain global trade 61

Short-term capacity stable 62

Medium long term on a continued high level 62

Outlook 63

Coverage o trade nance instruments 63

Section 6 Impacts o the new regulatory regime 64

Background 64

Banks awareness o the new regulatory regime 64

Unintended consequences o the new regulatory regime or trade 65

Regulatory treatment o trade nance as a low-risk orm o nance 66

ICC Survey 2011 points to key issues concerning the new regulatory regime 69

Recommendations 70

Section 7 The way orward and conclusion 72


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List o fgures

Figure 1 ICC 2011 Survey timetable 21

Figure 2 Location o respondents 22

Figure 3 Banks employee levels involved in processing trade nance transactions 22

Figure 4 Trade processing prole o ICC respondents 23

Figure 5 Export transaction volumes 23

Figure 6 Import transaction volumes 23

Figure 7 The global cycle, world trade 2007Q1 2010Q3 24

Figure 8 Trade recovery trend 25

Figure 9 Merchandise export volume 26

Figure 10 Coverage o trade restrictive measures or all WTO members 26

Figure 11 Value o trade nance activity between 2009 and 2010 29

Figure 12 Export processing volume trends 2009 29Figure 13 Import processing volume trends 2009 29

Figure 14 Availability o trade nance 30

Figure 15 Product mix, by percentage, o international trade products handled by banks 31

Figure 16 Change in ees or issuance o bank undertakings 31

Figure 17 Requests or conrmations 32

Figure 18 Change in conrmation ees 32

Figure 19 Increased applicant pressure to reuse documents 33

Figure 20 Reused documents without seeking/accepting waiver 33

Figure 21 Increased number o spurious discrepancies 33

Figure 22 Claims under guarantees and standbys 33

Figure 23 Losses in traditional trade nance products versus general banking acilities 34

Figure 24 SWIFT trade trac worldwide in number o messages, 2003-2010 35

Figure 25 SWIFT top 3 messages, 2008-2010 35

Figure 26 SWIFT trade trac worldwide comparison by month, 2009-2010 35

Figure 27 Comparing MT 700 with MT 734, 2008-2010 35

Figure 28 SWIFT MT 700 (Sent) , issue o a documentary credit comparison, 2008-2010 36

Figure 29 Currency percentage breakdown or L/Cs, December 2010 36

Figure 30 Currency volume o L/Cs issued 37

Figure 31 SWIFT trade trac by region (sent), 2008-2010, category 4 and 7 38

Figure 32 Trac or Arica and Asia-Pacic 38

Figure 33 SWIFT trade trac by region (received), 2008-2010, category 4 and 7 39

Figure 34 Arica and Asia-Pacic Export transactions received 39

Figure 35 Category 4 by region sent, 2008, 2009 & 2010 40

Figure 36 Category 7 by region sent, 2008, 2009 & 2010 40

Figure 37 SWIFT trade trac: major recipient regions 2010 40

Figure 38 Trade trac: Categories 4 & 7 cross-border messaging 2008, 2009 & 2010 (sent) 41

Figure 39 Trade trac: Categories 4 & 7 cross-border messaging 2008, 2009 & 2010 (received ) 41Figure 40 SWIFT trade trac (sent): East Asia and Pacic South Asia, 2003-2010, category 4 and 7 41

Figure 41 SWIFT trade trac (sent): Middle East and North Arica Sub-Saharan Arica, 2003-2010, categories 4 and 7 42

Figure 42 SWIFT trade trac: by region (sent), 2003-2010, category 4 and 7 42

Figure 43 Multilateral development bank programmes 43

Figure 44 Key trade fows in the CIS (in annual percentage change) 44

Figure 45 Number o TFFP transactions supported since 2005 48

Figure 46 Amount o TFFP transactions supported in USD MM since 2005 (aggregate) 48

Figure 47 Short term export credit insurance in USD million 62

Figure 48 Medium long term export credit insurance in USD million 62

Figure 49 Banks awareness o Basel III 65

Figure 50 Will Basel III cause your bank to reassess trade products? 65

Figure 51 Perception o the impact o Basel III 65

Figure 52 Average rate o deault on traditional trade products, 2005-2009 (%) 68

Figure 53 South-South Trade 1996-2008 72


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List o acronyms

ADB Asian Development Bank

ADB Arican Development Bank

BAFT Bankers Association or Finance and Trade

BCBS Basel Committee on Banking Supervision

BIS Bank or International Settlements

Bp Basis Point

BRIC Fast-growing developing economies o Brazil, Russia, India, and China

CCF Credit Conversion Factor

DCI ICCs quarterly newsletter, DCInsight (ICC Publication)

EBRD European Bank or Reconstruction and Development

ECA Export Credit Agency

EUR Euro

GDP Gross Domestic Product

ICC International Chamber o Commerce

IDB Inter-American Development Bank

IFC International Finance Corporation

Io Institute or Economic Research

IFSA International Financial Services Association

ILO International Labor Organization

IMF International Monetary Fund

LCs Letters o credit

LGD Loss given deault

LICs Lower income countries

MDB Multilateral Development Bank

MDGs Millennium Development Goals

MIC Middle-Income Countries

PRC Peoples Republic o China

SME Small and Medium-sized Enterprise

SWIFT Society or Worldwide Interbank Financial Telecommunication

UCP Uniorm Customs and Practices or Documentary Credits (ICC Rules)

UK United Kingdom

USD United States Dollar

WTO World Trade Organization


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The year 2010 was the year o recovery or world trade, with global trade in volume having grown by

at least 13.5%. It is also expected to grow at a sustained rate in 2011. Trade nance markets which,

during the worst o the nancial crisis, have been a signicant cause o the big trade collapse,

are returning to more normal conditions. However, traders at the periphery o grand trade routes,

particularly low-income countries, remain subject to serious diculties in accessing trade nance at

an aordable cost. Small- and medium-sized enterprises, wherever they operate, also suer rommore dicult access to trade credit.

In the midst o the nancial crisis, we at the G-20 Summit in London decided to mobilize USD 250

billion in additional short-term trade nance to restore condence in the trade nance markets. What

is needed now is a more targeted use o resources, ocusing on the poorer countries and small and

medium-sized enterprises around the world. They should not be paying the high price or the repair

and re-regulation o the global nance industry.

In view o the remaining diculties or these actors, World Bank President Robert Zoellick and

I, with the support o the heads o multilateral development banks, drew the attention o the

international community to this problem. At the G-20 Seoul Summit in November 2010, the heads o

states and governments adopted a Declaration which, in paragraph 44 (Fighting Protectionism and

Promoting Trade and Investment section), stated: To support LIC capacity to trade (...), we note

our commitment to () support measures to increase the availability o trade nance in developing

countries, particularly LICs. In this respect, we also agree to monitor and to assess trade nance

programmes in support o developing countries, in particular their coverage and impact on LICs,

and to evaluate the impact o regulatory regimes on trade nance.

Monitoring these developments requires data. In the absence o a comprehensive set o

international statistics or trade nance, the International Chamber o Commerce continues to

provide a much-needed contribution by preparing useul data through its Market Intelligence Survey

on trade nance, taking advantage o its large membership across the world. The results o this

ourth Survey have relied on a more robust participation o banks in a large number o countries.

ICC has also made great progress in developing an ICC Register on Trade Finance. This initiative is

particularly useul in providing evidence that trade nance is sae and worth promoting. I thereore

welcome the publication o the ICCs Banking Commission new Market Intelligence Survey ocusingon developments in trade nance in 2010, as well as the upcoming progress on the Register. These

will be useul inputs to our eorts to improve conditions or the unctioning o the trade nance

market.

I take this occasion to thank ICC or their contribution to the work o the WTO Expert Group on

Trade Finance and count on their continued involvement during the course o 2011.

Pascal Lamy

Director-General, World Trade Organization

Foreword 2011: Consolidating the recoveryo trade and trade fnance

Pascal Lamy


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Introduction ICC Banking Commission: Three years oleadership bridging the inormation gap

Thierry Senechal

We are pleased to release the International Chamber o Commerces (ICC)s latest edition o

Rethinking Trade & Finance, the annual Survey o global trade & nance. In these Surveys our aim

is to provide leaders with independent, accurate and in-depth analysis o trends in trade nance

to keep them at the oreront o industry knowledge.

More than ever, our increasingly interconnected and interdependent world aces ar-reaching

uncertainties. The nancial crisis in recent years has demonstrated that events that were ormerly

localized or isolated now have systemic global consequences. Now we are also acing major risks

o disruptions as a consequence o the political turmoil in Arica and the Middle East and the ears

concerning the nuclear crisis in Japan.

These are important times or our industry, and they require that we remain updated and inormed.

The ICC Global Surveys have become an important inormation source enabling bankers, traders

and government ocials to gain an accurate snapshot o the trends prevailing in the markets and

to gauge uture expectations or global trade.

In this Survey, completed in collaboration with leading international institutions, we have brought

together some o the most orward-thinking industry experts in banking and international institutions

to scan the world or signs o change in business and trade and to help our members make sense

o emerging patterns and their implications.

Because these changes are accelerating driven by revolutionary technologies, ast-moving

emerging markets and collapsing products and rms the ICC Survey 2011 provides an enhanced

regional ocus, with exclusive data provided rom emerging economies. In the past, we have been

successul in presenting a global picture o trade and nance. It is logical that we now oer cutting-

edge inormation on regional developments.

ICC Global Surveys: Gathering market intelligence

How do nancial institutions and policy makers respond to the worst nancial crisis in decades and

develop policies to restore trade to normal levels? They rst need to ocus on improving market

intelligence so that uture nancial decisions can be based on solid evidence.

In 2008, there was no knowledge management tool at the aggregate industry level that could

provide an overview o the pressing needs or accessible trade nance, one that could clariy the

links between trade nance and economic growth. Apart rom the piecemeal data available or

some market segments or particular regions, no global aggregates were available. Nor did the

industry ormally document inormation or experience that could be useul to others, especially

during periods o crisis.

The ICC Global Surveys were made possible when the World Trade Organization (WTO) asked ICC

to provide data or the G-20 meeting o world leaders at their rst economic Summit, held in 2008

in Washington, DC. The WTO Expert Group on Trade Finance became an important orum during

the crisis, holding regular meetings with partners rom commercial banks, the Berne Union, regional

development banks and other multilateral export credit and specialized agencies. This group, o

which ICC was a member, was instrumental in understanding the causes o the shortage o trade

nance and in devising cooperative solutions through which public institutions could help private

sector nancial institutions shoulder the risk o operating in an unstable nancial environment.

In 2008, when planning the Surveys, ICC oresaw that the work would be most benecial when

acquired rom the greatest number o sources and disseminated to the widest possible audience.


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inclined they are to use L/Cs. Without this means o nance, many SMEs, which provide the vast

majority o export trade, would not be able to nance their operations.

Consequently, it is not surprising that trade nance is considered to be the lieblood o trade. This is

the reason the ICC Banking Commission, the source o the most widely used rules on trade nance,

has been accepted as a recognized authority on global trade and nance.

Becoming a partner helping policy makers to designthe next generation o banking regulations

The ICC Banking Commission has consistently advocated a air and rules-based multilateral trading

system that would work to the benet o nations at all levels o development.

ICC re-arms its intention to maintain a constructive dialogue with policy makers and regulators

worldwide. As a source o meaningul industry inormation on trade and nance, we believe we can

make a valuable contribution to discussions concerning how key regulatory regimes are designed

and implemented in a dynamic international environment.

We trust readers will nd the inormation in the ollowing pages helpul to both business and

governments, enabling leaders to think more creatively about the ways trade is conducted and

regulated.

Thierry Senechal

ICC Senior Policy Manager, Banking Commission


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Executive summary A continuing tradition o providing leading

inormation on trade and nance

This 2011 ICC Global Survey received responses rom representatives o 210 banks located in 94

countries. This represents a 30% increase over the 2010 Survey in the number o banks that have

submitted opinions and statistics concerning the current trade nance landscape in their respective

countries.

Since the Survey attracted comments rom an additional 19 countries, when compared with the

2010 Survey, the results are again displayed on a global basis rather than drawing comparisons

between responses rom banks in Europe, Asia and North America, which were the major

contributors to the 2009 Survey.

Recovery is taking place globally

The ICC Surveys 2009 and 2010 revealed that bank-intermediated trade nance was severely

aected by the nancial crisis. During 2008-2009, global trade ell by 23% or USD 3.5 trillion in

value, and banks signicantly reduced the availability o trade nance to shore up capital positions.

The 2011 Survey shows that trade fows have rebounded in many regions. Most experts agreed

that business has been signicantly improving since the nal quarter o 2009. Markets in several

advanced economies are quickly returning to normal trading conditions, in terms o liquidity and the

availability o trade nance. Similar improvements are to be seen in the acceptance o risk and in

pricing. On the whole, the recovery is being driven by increased trade within North America, Europe

and Asia, and between Asia and the rest o the world.

Unortunately, the recovery has been uneven, and several regions, particularly in Arica, continue

to experience markets under stress. Moreover, traders in many low-income countries still have

considerable diculty accessing trade nance at an aordable cost, particularly or import nance.

One positive development is that the average price or L/Cs in large emerging economies ell rom

150-250 basis points in 2009 to 70-150 basis points in 2010.

In Asia and Latin America, liquidity has returned, but there is still a market gap resulting rom a

general deterioration in the credit-worthiness o traders, coupled with greater risk aversion by

commercial banks. As a result, the cost o trade nance in these regions remains disturbingly high.

The supply o trade nance has signicantly improved both in value and volume

In 2010, according to respondents, both the volumes and the overall value o trade nancetransactions increased. The percentage o trade credit lines that were cut or corporate and nancial

institution customers ell markedly. Fees or bank undertakings and L/C conrmations appear to

have settled down and mainly fattened during the course o 2010.

Respondents reporting an increase outpaced those reporting a decrease by a ratio o around 3:1.

Some 58% o the nancial institutions responding reported an increase in export L/C volume and

66% an increase in import L/C volume. Considerable increases were also reported or guarantees

(42% or exports and 48% or imports).

Increases o 49% were seen or collections or both the exports and imports. This may refect

the act that corporates sought a change rom open account transactions by having the banking

system act as custodians or their documents. Only 12% o respondents indicated that in 2010

their trade credit lines or corporates decreased. This compared avourably with a 40% decrease

reported in the 2010 Survey.


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ICC noted that there was an increased demand or implementation o ICC rules governing trade

nance. For instance, there were increased demands or training on the use o the Uniorm Rules or

Demand Guarantees (URDG), which apply to billions o US dollars o guarantees securing monetary

and perormance obligations in a wide array o international and domestic contracts. The same

trend existed or UCP rules on documentary credits.

Aordability o trade nance

The 2011 Survey continued to address issues related to pricing.

n Around 75% o respondents indicated that their ees or issuing bank undertakings had not

changed in 2010. Where ees had changed (decreased or increased), this was mainly conned

to a range o 1-25%.

n 78% o respondents anticipated that their ees or the issuance o bank undertakings would not

rise in 2011.

Nonetheless, 12-15% o respondents indicated an increase in ees or commercial letters o credit,

standbys and guarantees.

There is still intense scrutiny o documents, leading to a large number o reusals.Levels o court injunctions have also increased

Last years Survey reported that 23% o respondents had seen an increase in the number o court

injunctions barring payment under letters o credit. At the time, some respondents also reported

intense scrutiny o documents by some banks, eventually leading to higher rates o rejection o trade

documents under L/Cs or minor or non-existent discrepancies.

From the 2011 Survey, we conclude that these problems still persist.

n 34% o respondents (same as in the 2010 Survey) experienced an increase in the number o

reusals by issuing banks in 2010;

n When acting in the capacity o a nominated bank, 85% o respondents (up rom 71%), reported

they had experienced an increase or no change in the number o spurious/questionable reusals;

and

n Some 5% o respondents (down rom 11%) had taken their own decision to reuse and return

documents without seeking a waiver rom their clients. The same respondents indicated that on

average they had taken this course o action less than ten times in 2010. This compares with the

11% who, in the 2010 Survey, reported they done so less than ve times in the previous three

years. These actions by banks clearly demonstrate their unwillingness to extend urther credit

to clients by allowing them to waive discrepancies.

The 2011 Survey also showed that 26% o respondents (up rom 23%) had experienced an increase

in the number o court injunctions stopping payment under bank undertakings. This indicates

that parties are seeking legal remedies to opt out o their obligations under a sale or perormancecontract.

40% o respondents (down rom 44%) reported an increase in the number o claims received under

standby letters o credit and guarantees. This refects the value o the additional security and the

previously reported demand or this type o undertaking.

ICC has demonstrated to regulators that trade nance is saer than they thought

Three years ago, we experienced considerable diculty in collecting comprehensive data rom

trade nance markets. Today, we are in a dierent position. When the crisis developed in 2007, the

ICC Banking Commission expressed concern to policy makers and regulators that trade nance

had been severely aected and that specic measures would be required to restore liquidity and

trust in the markets. But at the same time, we had little or no documented evidence concerningthe contraction in trade.


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In 2010, ICC designed a Register to collect perormance data on trade and nance. The ICC

Register looking at the deault risk o trade nance instruments between 2005 and 2009 and

pooling trade nance perormance data covering a total o 5.2 million transactions with a total value

o over USD 2.5 trillion ound that o-balance sheet trade nance transactions had an average

tenor o just 80 days and an insignicant incidence o deault. Even during the global economic

downturn these transactions experienced relatively low levels o deault, with ewer than 500deaults or 2.8 million transactions. For written-o products, recovery rates averaged 60% or

all product types.

The new regulatory regime may have important unintended consequences

In the present Survey, 81% o respondents indicated that their nancial institution was aware o

the new regulatory regime imposing new capital, liquidity and leverage requirements on all banking

activities. When asked the question Do you anticipate that the Basel III requirements will cause

your bank to re-assess its trade nance strategy and products?, 34% o respondents indicated

that they would.

An alarming 57% o respondents said they lacked sucient inormation on new regulatory

requirements at this stage. This indicates the existence o an inormation gap between the industry

and policy makers. Some 35% o respondents said they expected the Basel III requirements to

negatively or very negatively impact their trade nance business.

Altogether, 31% o respondents indicated that in 2010 regulatory constraints negatively

aected their business. As one example, 27% o respondents said they had considered closing

correspondent relationships in 2010 due to the increasing cost o compliance (including more

stringent KYC rules).

Not surprisingly, ICC respondents have been seriously concerned about the unintended

consequences that could arise rom the new regulatory regime, which indiscriminately puts trade

nance in the same risk class as other high-risk nancial instruments.

According to the respondents, the increase in the leverage ratio under the new regime would

signicantly curtail their banks ability to provide aordable nancing to businesses in developing

countries and to SMEs in developed countries. In the calculation o the leverage ratio, banks

are now likely to be required to apply a CCF o 100% or any o-balance-sheet trade nance

instruments such as commercial letters o credit, which are commonly used in developing and low-

income countries to secure trade transactions.

In addition to the problem posed by the new leverage ratio, ICC respondents indicated that there

should be reconsideration o the Basel rules in respect o the one-year maturity foor applied to

trade assets under the advanced model. Substantial ICC research has shown the low risk, sel-

liquidating nature o trade nance.

Multilateral developments banks are playing a vital role

Respondents, including many ICC Banking Commission members, underscore the importance o

targeted temporary nancing and, in some cases, agreements with international banks to address

liquidity shortages and problems o risk perception.

The role played by the development banks in supporting international trade and nance is

accelerating at a greater pace than increases in trade volumes. These banks initial stance o

providing risk coverage has now been supplemented by innovative solutions to provide liquidity and

to ll market gaps as they arise.

ICC noted with interest the important role played by development banks in building trade supply

chain networks between banks in emerging markets. The accelerated advancement o South-South

trade supported by the development banks programmes is an interesting phenomenon and one

that we expect to continue.


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With a signicant emphasis on supporting SME trade in emerging markets, the positive

development impact o development bank support is evident. Furthermore, based on the ndings

o this Survey, we can expect to see continued expansion o the development banks portolios o

trade nance support as well as a greater proportion o trade deals being initiated by conrming

banks as the impact o tighter global banking regulation is elt in the market.

Conclusion and recommendations

In the atermath o the global nancial crisis, trade has begun its path to recovery, led by a strong

rebound in some regions, particularly in Asia.

However, many developing countries continue to ace considerable obstacles and challenges

in tapping global markets and reaping the benets associated with trade. On top o supply-side

constraints such as limited or weak trade-related inrastructures and institutions, and unavourable

business or investment climates developing countries have also experienced vulnerabilities to

high ood and energy costs as well as nancial shocks.

To maintain the recent momentum toward recovery, concerted eorts will be required to keep

protectionist tendencies in check and to recommit to build a stronger and more eective multilateraltrading system that serves developing countries. Concluding the Doha Round is particularly

important in this respect.

These eorts will need to be accompanied by measures to support access to trade nance or low-

income countries and small banks in developing countries. Increasing trade liberalization among

developing countries and export diversication into services can help mitigate the impact o crises

and global volatility.

Adequate and aordable trade nance is also undamental to economic recovery and growth.

In developing countries, the shortage o available trade nance is critical, as it is or SMEs in

developed countries, which oten rely on smaller banks as their sources o nancing. ICC continues

to stress the key role this kind o nance plays in economic growth.


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An industry outlook on the recovery

To provide a market update or the Survey, we asked three trade nance experts:

Kah Chye Tan, Global Head o Corporate Cash and Trade, Standard Chartered Bank and

Chairman o the Banking Commission; John Ahearn, Managing Director, Global Head o

Trade, Global Transaction Services, Treasury and Trade Solutions Group, Citibank; and

Daniel Cotti, Head o Global Trade, JPMorgan Chase to give us their views.

What are your thoughts concerning the recovery o global trade during the past year?

Kah Chye Tan

In short, most countries have recovered. But we are living in a volatile world. Just beore the crisis,

economists were talking about a decoupled world. In the midst o the crisis, the decoupling theory

was thrown out o the window. Today, ater the crisis has eased, the theory is making a comeback.

We are currently witnessing strong growth in emerging markets, and will not be surprised i many

Asian economies post double-digit GDP and export growth rates. Asian governments are actively

taming infation, managing growth and preventing a property bubble. While there is growth in OECD

trade, it is more muted when compared to Asia.

John Ahearn

Citi has a slightly dierent view. While we have seen signicant growth across many regions, we do

not believe that decoupling is a reality. With most o the OECD still very much in a recession and

the public sector struggling with signicant debt loads, we believe that economic activity will remain

weak or the oreseeable uture.

When you add the backdrop o the recent issues in the Middle East, especially in Egypt, we believe

that sovereign risk will again become a major issue, i not because o current account decits,

then as the result o political instability.

We make these statements against what we acknowledge is a decreasing price scenario, which

we believe is overdone.

Daniel Cotti

Entering 2010 we viewed the world through a cautiously optimistic prism. In 2009, we saw the worko central banks and international nance organizations increase to supplement the limited trade

nance being made available through the remaining strong providers. As a result, in 2010 the global

economy got a boost on its road to recovery.

The stronger economies, Asia and Latin America, continued demonstrating their strength as intra-

Asia trade and South-South trade showed continued growth and vitality. Western Europe and the

United States began a slower rebound, while some regions such as Arica, Central Asia and Central

America continued to lag behind the other economies.

During the course o 2010, we saw demand increase, especially in manuactured and nished

goods. Commodity fows were strong as well, as Chinas and Indias voracious appetite or raw

materials to support internal inrastructure and increased production capacity continued unabated.

In the US, consumers returned as they saw markedly improved investment returns and low infation.

Europes economic engine, Germany, resumed its usual strong export perormance, providing

stability and unding to the euro economies.

Kah Chye Tan

StandardChartered Bank

John Ahearn

Citibank

Daniel Cotti

JPMorgan Chase


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While there was mostly good news on the macroeconomic ront, we saw trade nance pricing

continue to all. In many markets, prices are at or near pre-crisis pricing levels. Secondary markets

have been restored, as investors appetites continuing to increase. There has also been continued

utilization o development bank support programmes.

Market participation has expanded as well to pre-crisis levels as banks that withdrew during the

crisis are coming back in. Unortunately, some are demonstrating the bad behaviour that was in

evidence beore the crisis and taking risks without the possibility o reasonable and rational returns.

What new trends are you seeing in global trade?

Kah Chye Tan

The challenges the industry aces today have evolved signicantly. Competition is no longer limited

to global or local banks. The industry is aced with an unprecedented barrage o new regulations.

Although Basel has received a lot o attention, there are many other developments. Just to name a

ew, there are new regulations in the areas o KYC, sanctions, AML, etc. We recognize the intention

o these new regulations, and agree that their objectives make perect sense. But, I have two

caveats to highlight:

1) Collectively, they are adding an enormous amount o costs to our clients, and I encourage

our regulators to take a holistic view o these regulations.

2) Regulators should step up their engagement with the industry and seek eedback to ensure

that the regulations are on track to achieve what they are intended to accomplish.

There is a lot o room or more requent and open communication between the industry and

the regulators.

John Ahearn

From a regulators point o view I would agree strongly with Kah Chye. No one wants to support

money laundering or terrorist nancing, and I truly believe that banks are strongly engaged in ways

to stop these fows However, trying to manage ambiguous regulations that require each institution

to interpret the laws and then try and nd solutions is not cost-eective. A more consultative

approach with clear guidelines between the regulators and banks would yield more ruit.

With regard to competition, this is an area we are just beginning to understand. Historically, my

competition was with other banks. However, given the new regulations that are coming out,

especially Basel III and others, we may nd ourselves competing against our customers. The

traditional model o banking was to say to our customers: Consider my balance sheet. I have the

cheapest orm o capital and I have leverage With the regulations and the need or banks to raise

much more capital and reduce our leverage, that may no longer be the case. Instead, companies

may nd themselves going to the capital markets and raising cash to sel-nance themselves.

That may be a more attractive model going orward.

Daniel Cotti

The product mix in 2010 continued along the same lines that were experienced in 2009. Letters o

credit usage continued remained fat with the volume concentrated in support o SMEs and smaller

economies. We saw our correspondent bank customers increasing their demand or dollar-based

nancing to support the needs o their local customers. Supply chain nance demand continued

its growth trajectory as major buyers continued to strengthen their supply chains while negotiating

more avourable terms. Sellers are nding more appetite or their counterpartys paper and, as a

result, previously constrained liquidity sources are reeing capacity. Highly structured transactions

re-emerged but with greater transparency and ortied documentation. The credit insurance market

also saw improvement.


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As one repercussion o the economic crisis, regulators, both local and global, have intensied their

scrutiny o the banking community in an eort to prevent a reoccurrence o the 2008 debacle. In

2010, we saw the emergence o Basel III, which sent shockwaves through the banking industry.

Requirements or increased capital and higher risk premiums or trade nance transactions have

banks seriously reconsidering their involvement in trade nance. Global sanctions imposed by the

United Nations against Iran have also had a major impact on most banks, as greater scrutiny otransactions, especially transportation inormation, has been required.

What is your outlook or global trade in 2011 and 2012?

Kah Chye Tan

2011 is looking good or our clients, as trade pricing is heading back to pre-crisis levels. For

example, top-tier Indian banks priced at 0.8% beore the crisis and that shot up to a high o 6.5%

or a short period o time during the crisis. Competition is coming back with a vengeance. That has

created a war or talent in an already paper thin market.

John Ahearn

2011 and 2012 look to be very interesting, to say the least. Competition will continue to be strong

as Kah Chye says, but our belie is that this will not be the case through the entire period. At

some point we need to get back to undamentals in the business, especially in the orm o pricing.

Spread compression has brought transactional pricing below the credit deault swap level or

many countries. As an example, we are seeing deals priced at 17 bps or some ECA pricing.

When you look at that against the sovereign risk rating and CDS pricing in the market, you see

Sovereign CDSs or the same risk at 49bps. When this is coupled with new capital charges and

internal liquidity premiums that some banks need to pay or liquidity, clearly current pricing is not

sustainable.

In addition we believe that certain banks will be aced with a decision based on their need or capitalas to whether they will remain in the trade business or not.

Clearly, this will be a time o change.

Daniel Cotti

Our outlook or 2011 is bullish. Major trading partners are expected to continue their rebound and

growth trajectory. Trade nance will increase, but capacity in most markets will improve, reducing

prices even more. Initial orecasts indicate that by early 2012, global trade will have recouped its

losses and resume its traditional growth rates. Letter o credit utilization will remain concentrated in

SME markets and in the smaller economies, since their growth prospects are not as avourable as

those o the major markets.

Though increasingly less likely, the threat o a double-dip recession is still present, since

deleveraging and the purging o bad assets will continue unabated in 2011. Also, the dreaded risk

o infation still lurks, as economies with cheap liquidity will heat up until this risk has been reduced

or eliminated. The Eurozones problems are ar rom resolved, and any uture disruptions threatening

the undamentals o the currency could plunge it back into recession. That said, these threats will

not negate the continued strong growth we see in trade nance markets.


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Section 1 Background and methodology

Purpose and scopeo ICC Survey 2011

The ICC Banking Commission has under taken

another global trade nance Survey (the third

in the series) to gather reliable quantitative

and qualitative data or the trade nance

market and to gauge the outlook or trade in

2011. The purpose o the Survey is to obtain

inormation rom the marketplace that refects

current commercial and operational practicein the international trade nance banking com-

munity that can aid world leaders to ormulate

policy in this eld.

In addition to the participation o members o

the ICC Banking Commission, the cooperation

and partnership o the ollowing trade organiza-

tions was key to the production o this Survey:

n The World Bank;

n Society or Worldwide Interbank Financial

Telecommunications (SWIFT );

n The Berne Union;

n The European Bank or Reconstruction

and Development (EBRD);

n The International Finance Corporation (IFC);

n The Asian Development Bank (ADB);

n The Inter-American Development Bank

(IDB);

n The Arican Development Bank (ADB); and

n ICC national committee network.

The contributions o these organizations have

helped build on the success o last years

Survey both in terms o content examined

and participation. The World Bank and SWIFT

have again provided recent and exclusive his-

torical trade fow data (volume and value) or

contextual and comparative purposes. This

year, the Berne Union has again contributed an

analysis with key data concerning the activities

o Export Credit Agencies (ECAs).

The members o the ICC Banking Commission

once again responded to the call to provide

inormation on trade products to the market-

place. Responses to the Survey were up

signicantly rom last year, both in terms o the

number o participating banks and countries.

The development banks (EBRD, IFC, ADB, IDB

and ADB) once again mobilized the member

banks in their respective trade acilitation

programmes to participate in the online Survey

and contributed a section with their responses

to the crisis.

The methodology or this Survey was,

primarily based on a 37-item questionnaire

developed to collect inormation rom the trade

nance banking members o the participating

organizations.

Methodology outline and timetable

The Survey questions targeted trends in the

trade nance operations o banks in 2010 and

specically addressed the ollowing topics:

n Trends in volumes and values o traditional

trade products

n Trends in demand and pricing or bank

undertakings and L/C conrmations

n Trade credit line availability

n Loss experience in rating traditional trade

products compared to general banking

acilities

n Operational impact o Basel II and market

perception (and awareness) o the

impending implementation o Basel III

n Other regulatory considerations

Figure 1 ICC 2011 Survey timetable

November2010

Dratquestionnaire

January2011

Surveycompleted

February2011

Resultscompiled

March2011

Reportcompleted

2011ICCGlobal Survey onTrade andFinance

Tradeandfnancial markets

development 2009-2010

Routestorecovery:

aregional perspective

Impactsothe regulatory

regimeon tradeandfnance

Market outlook

RethinkingTrade and

Finance


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Participation inthe 2011 ICC Survey

The present report has been prepared by the

ICC Secretariat based on a Survey conducted

worldwide in early 2011. Coastline Solutions,ICCs inormation technology partner, has been

responsible or the collection o the data.

The 2011 Survey received responses rom

210 banks in 94 countries. This is a sharp

increase over the 2010 Survey, which received

responses rom 161 banks in 75 countries

(the 2009 Survey received responses rom 122

banks in 59 countries, already a satisactory

response level).

We are thereore pleased to note that ICC

Surveys have been gaining wide recognition inthe industry and are taking the lead in providing

key inormation on trade & nance, thereby

signicantly bridging the inormation gap.

The breakdown by geographic region o

respondents to the ICC Survey was as ollows:

Figure 2 Location o respondents

The above graph shows the geographical

distribution o respondents across dierent

regions. The proles o respondents (by size

o employer) varied signicantly, but most

were rom large nancial institutions (55% o

respondents were rom banks with more than

300 trade nance employees).

Figure 3 Banks employee levels involved inprocessing trade nance transactions

Respondents to the Survey indicated that

two regions represented their primary ocus

or trade nance business Asia (47%) and

Europe (33%).

Aghanistan

Algeria

Argentina

Armenia

Australia

Austria

Azerbaijan

Bahrain

Bangladesh

Belarus

Belgium

Belize

Benin

Bolivia

Brazil

Brunei

CambodiaCameroun

Canada

China

Colombia

Costa Rica

Croatia

Cyprus

Czech Republic

Denmark

Dominican Rep.

Ecuador

Egypt

Estonia

Finland

France

Georgia

Germany

Ghana

Greece

Guatemala

Honduras

Hong Kong

Hungary

India

Indonesia

Iran

Ireland

Israel

Italy

Jordan

Kazakhstan

KenyaKorea (South)

Kuwait

Kyrgyz Republic

Lebanon

Lithuania

Malawi

Malaysia

Malta

Mexico

Moldova

Mongolia

Nepal

Netherlands

Nicaragua

Nigeria

Norway

Pakistan

Palestine

Panama

Paraguay

Peru

Philippines

Portugal

Qatar

Macedonia

Russian Federation

Serbia

Sierra Leone

Singapore

South Arica

Spain

SudanSuriname

Sweden

Switzerland

Taiwan

Tajikistan

Thailand

Turkey

Ukraine

United Arab Emirates

United Kingdom

United States

Uruguay

Vietnam

The respondents to the ICC Survey came rom the ollowing countries:

Australia

2%

Asia

29%

Middle East

7%

Africa

8%

Europe

35%

South America

13%

North America

6%

>501

40%

401 - 500

4%

301 - 400

11%

151 - 300

10%

50 - 150

14%


23/76


The structure o respondent banks

international trade operations was as ollows:

n 22% o banks trade nance operations are

distributed globally;

n 71% o banks trade nance operations arebased in one country; and

n 7% o banks trade nance operations are

based in a number o countries within one

geographic region

It should be noted that 87% o respondents

indicated that all o their trade processing was

carried out in-house; 12% said that some o

their trade processing had been outsourced.

And 1% had completely outsourced their

processing activities (Figure 4).

O the banks that have outsourced some

trade processing, 22% reported that they were

considering outsourcing the remainder within

the next two years. O the banks that have

not outsourced, 11% indicated that they were

considering some orm o outsourcing within

the next two years.

When respondents were asked to indicate the

percentage breakdown, by volume, o the types

o trade nance products handled by their

trade nance departments in 2010 (Figures

5 and 6), they responded that the majority

o transactions, or both export and import

transactions, by volume, were commercial

letters o credit.

However, it is necessary to point out that about

80%-85% o trade transactions are estimated

to be settled on an open account basis, the

rest being traditional trade products such as

documentary and standby L/Cs, documentary

collections and guarantees. The graphs belowdid not contradict this, but they revealed that

ICC respondents were responding mainly rom

the trade nance departments o nancial

institutions, with open account processing

being handled in separate areas o the bank.

This report is an amalgamation o the eed-

back and opinions o this geographically and

organizationally diverse cross-section o the

trade nance banking community.

Figure 4 Trade processing proleo ICC respondents

Figure 6 Import transaction volumes

Figure 5 Export transaction volumes

Letter of Credit 42%

Standby Letter of Credit 7%

Guarantee 15%

Collections 23%

Open account 11%

Other 2%

42%

15%

23%

11%

7%

2%

Letter of Credit 42%

Standby Letter of Credit 10%

Guarantee 21%

Collections 18%

Open account 7%

Other 2%

42%

10%21%

18%

7%

2%

Process all in-house 87%

Outsourced minor part 9%

Outsourced major part 3%Outsourced all trade processing 1%

87%

9%

3% 1%


24/76


Section 2 World economy: Expectations point to recovery

The great trade collapse andrecovery a quick overview

International trade had a sharp and globally

synchronized all in the second hal o 2008

and early 2009. Exports o advanced, emer-

ging, and developing economies were all

growing robustly through mid-2008 beore

dropping sharply during the initial trade col-

lapse. According to the World Bank, world

merchandise trade has recovered since early2009, but remains below pre-crisis levels. The

IMF contends that while advanced economies

were aected most strongly by the nancial

crisis, the consequences spread internationally.

In addition to a general collapse o trade, other

repercussions included a contraction o capital

fows and a reduction in remittances. Although

the eects o the crisis were signicant in

advanced economies, emerging markets and

low-income countries suered some o the

most severe consequences in decades.

According to the World Bank1

, world importvalue has increased nearly 30% since its low

1 We would like to thank Mariem Malouche and Jean-

Pierre Chauouro the World Bank or helping with this

section o the report.

point in February 2009, recovering at double

its rate o growth during 2002-08. However,

world import value still remains 18% lower

than the pre-crisis peak and even lower than

it would have been had the world economy

continued to grow at 1995-2008 rates.

While the International Monetary Funds

global GDP growth projection or 2011 has

been recently revised upward (by a quarter o a

point to 4.4%) in anticipation o stronger growthin the United States, persistent high ood

and energy prices threaten to undermine this

recovery. According to World Bank projections,

merchandise trade is expected to grow by

8.2% in 2011 and 9.5 % in 2012.

The recovery in trade has been much more

rapid in developing countries than in high-

income countries. During the rst ten months

o 2010, high-income country export volumes

grew at a 10.4% per annum, compared to

15.5% in developing countries. Trade has

bounced back in all developing regions, drivenby a vibrant rebound in emerging economies.

By 2010 all developing regions had recovered

to reach their pre-crisis export volumes, with

East Asia & Pacic and South Asia, especially

China and India, leading the recovery (export

volumes in SA and EAP peaked at higher levels

than pre-crisis).

Trade volumes in the Middle East & North

Arica have also rebounded, but continue to

be constrained by sluggish growth in their

main markets in the EU. Exports in Europe &

Central Asia also bounced back, led by intra-regional trade. Exports in Latin America & the

Caribbean have remained lackluster, with sharp

drops in October 2010 in Argentina and Chile

due to strikes and disruptions in metal supplies

and weather-related agricultural shocks. Export

growth in sub-Saharan Arica has recovered,

but remains volatile. While in some Arican

countries a avourable economic climate

prevails, in others it is only satisactory, while

yet others are experiencing economic cooling

or unavourable economic conditions.

The World Bank notes that globally, low-income countries (LICs) were insulated rom

the economic downturn, but also did not

benet rom the recovery, refecting their

-60

-40

-20

0

20

40

60

CIS

80

2007Q1

2007Q2

2007Q3

2007Q4

2008Q1

2008Q2

2008Q3

2008Q4

2009Q1

2009Q2

2009Q3

2009Q4

2010Q1

2010Q3

Asia

Others

South & Central America

North America World Europe

Figure 7 The global cycle, world trade 2007Q1 2010Q3

Source: WTO


25/76


lack o integration in the world economy.

The exports and imports o these countries,

in both volume and value terms, remained

comparatively fat during both the crisis and

post-crisis periods. However, as high-income

countries account or the bulk o the worldtotal import volume, their contribution to overall

import demand exceeded that o developing

countries. Much o the import demand was or

capital goods, a sector still dominated by high-

income countries.

An improvement in the worldeconomic climate

The Institute or Economic Research ( Io)

and ICC have just released the new World

Economic Survey (WES), which assessedworldwide economic trends by polling

transnational as well as national organizations

worldwide concerning current economic

development in their respective countries2.

The ICC-Io world economic climate indicator

achieved a new high since its 2007 levels,

demonstrating that economic activity overall is

picking up. However, trade has not yet attained

its pre-crisis trend (Figure 7 below). Ater the

slight decline in the ourth quarter o 2010,

the indicator has risen markedly and is now

clearly above its long-term average. The riseis the result o two actors: more avourable

assessments o the current situation and

the six-month outlook. The results indicate

that world economic activity, ater a slight

dampening at the end o last year, is rising

(ICC-Io Survey).

2 Io-ICC Survey February 2011

Changes in growth patterns:recovery is more broadly distributed

The recent world economic climate indicator

points to avourable growth patterns with a

broader regional distribution. While the BRICcountries, notably India and China, spurred the

world economic recovery in previous years, the

ICC-Io Survey shows that these countries are

no longer the only driving orce or growth.

While indicators are promising, it should be

noted that rising price expectations are being

elt across the globe, especially in Asia, but

in North America and Western Europe as

well. Oil, along with other commodities, such

as copper, are the main drivers increasing

world prices. Food prices, such as those or

sugar, cereals and spices, are also having an

impact and are especially important in Asia

and especially in India. While oil and other

lead commodities point to stronger growth in

the world economy, the hikes in ood prices,

partially the consequence o unavourable

weather conditions, are a source o concern.

Political instability, particularly in the Middle

East, is another actor that can have in impact

on growth, as political stability plays an impor-

tant role in decision making or investors.

Among individual regions the WES assessed,

Western Europe has upgraded its economic

expectations, but there are considerable

dierences among countries. Following the

nancial crisis, some Eurozone countries, such

as Germany, appear to have substantially

recovered, while other countries are still

struggling. Economic predictions in Western

Europe vary rom very bad (Spain and Greece),

to not satisactory (France, Italy, Slovenia,

Estonia and Cyprus), to satisactory (Austria,

Belgium, Finland, Luxembourg, Netherlands

and Slovakia), to avourable (Norway, Sweden

Switzerland). Nonetheless, or WesternEurope as a whole, economic expectations

are positive.

With regard to North America, the WES

assessment points to an economic climate

showing considerable improvement. The

recovery in the United States indicates that a

renewed economic downturn (double-dip

recession) is unlikely to take place.

According to the economic climate indicator,

other European regions seem to be lack

momentum. In Central and Eastern Europe,

improvements can be seen, especially in

EU member countries (Poland and Czech

Republic), as well as in non-EU countries,

Figure 8 Trade recovery trend

Sources: Datastream and World Bank DEC Prospects Group

Jul 93 Jan 96Jan 91 Jul 98 Jan 01 Jul 03 Jan 06 Jul 08 Jan 11

14

13

12

11

10

Developing countries

High-income countries


26/76


such as Albania and Serbia. Other countries

in the region, however, showed something o

a decline in their economic climate, while the

CIS countries (Russia, Ukraine, Kazakhstan,

Kyrgyzstan and Uzbekistan), showed only

moderate improvement overall.

Other regions, such as Asia, Oceania, Latin

America and Near East had positive economic

outlooks. Asia, or example, experienced a

considerable increase. In Asia, most countries

were assessed as having avourable to

very avourable economic climates, though

Vietnams declined to a only satisactory. Only

in Pakistan was the present climate considered

to be very poor.

Figure 10 Coverage o trade restrictivemeasures or all WTO members

Source: World Bank

Oceania has experienced damaging natural

disasters, but the regions economic situation

was judged to be avourable by WES experts.

In Latin America, a highly avourable or

optimistic climate prevailed in most countries,

with a ew exceptions, such as Bolivia whereeconomic cooling is to expected in the next

months. In the Near East, the overall economic

climate deteriorated slightly, but overall it

remained avourable. Countries experiencing

the lowest WES ratings include Iran and

Jordan.

In the Arican region, the overall economic

trends were not clear, though there were cases

where. improvements or a avourable economic

climate could be observed (South Arica,

Ghana, Malawai, Tanzania, etc.), while other

countries climates were rated satisactory or

cooling. WES experts identied a ew countries,

such as Zimbabwe, Ivory Coast and Comoros,

with a poor economic climate rating.

Some sectors have been hit harder

According to the World Bank, the downturn in

global trade was concentrated in investment

and durable goods, expenditures which can be

delayed during periods o uncertainty. Indeed,

whereas exports o consumer non-durables

ell 20% during the crisis, durables, machinery,

transportation and minerals ell 30%. As a

result, much o the recovery in trade was in

these categories. With the start o the recovery

and a rming up o demand, businesses

began replacing their depleted inventories,

and consumers, aided by various government

incentives, stopped holding back on some big-

ticket expenditures such as automobiles. These

actors aided the rebound in capital goods and

consumer durables, which account or the bulk

o global trade

Global trade in services suered a setback

in the crisis, though not as pronounced as

that in merchandise trade, due to its lower

dependence on trade nance. Services exports

increased by 8.4% in the rst ten months o

2010, led by passenger ares and other travel

services. Tourism had plummeted in 2009 but

showed a strong rebound in 2010, with arrivals

growth being led by East Asia, Latin America,

the Middle East and North Arica. However,

the arrivals growth was infated by high intra-

regional travel over a shorter period o time,

and by the discount pricing oered in therecovery phase. The Bank noted that tourism is

likely to su er in the MENA region in 2011, given

the current political turmoil.

Figure 9 Merchandise export volume

Source: Io

0

100

200

300

400

October 2008 October 2009

Other

Export

Border

Trade remedy

13

15

25

20

62

105

122

184

-30.00

-22.50

-15.00

-7.50

0

7.50

15.00

22.50

30.00

2008M01

2008M02

2008M03

2008M04

2008M05

2008M06

2008M07

2008M08

2008M09

2008M10

2008M11

2008M12

2009M01

2009M02

2009M03

2009M04

2009M05

2009M06

2009M07

2009M08

2009M09

2009M10

2009M11

2009M12

2010M01

2010M02

2010M03

2010M04

2010M05

2010M06

2010M07

2010M08

2010M09

2010M10

2010M11

2010M12

South AsiaMiddle East & North Africa

East Asia

Latin America

Sub-Saharan Africa

Europe & Central Asia


27/76


28/76


signicantly restrict LDCs exports, in particular

or products in which they are specialized,

contravening the undertaking at the G-20

Summit. Keeping markets open or LDCs

exports would help lit these economies out o

poverty. Extending 100% duty-ree quota-ree

(DFQF) access to all exports o LDCs would

promote new export opportunities or these

countries, opening market access or products

in which LDCs have a comparative advantage.

The international community should continue

to increase the availability o trade nance

in developing countries, particularly LICs, to

acilitate trade. Trade nance underpins the

nancial inrastructure that allows countries and

rms to trade with one another, and the lack

o it can have severe implications or a pro-development global trading system. The issue

o trade nance availability became especially

relevant during the global nancial crisis in

2008-2009, when higher lending costs, higher

risk premiums and liquidity pressures due to

scarcity o capital caused a sudden shortage in

this nance.

Lack o aordable trade nance has been

particularly harmul to SMEs, particularly in

LICs. Results rom the nancial markets and

surveys o rms taken during the crisis by the

IMF, the International Chamber o Commerceand the World Bank to overcome the lack o

data on trade nance, as well as post-crisis

empirical analyses, all indicate the prevalence

o tighter trade nance conditions during the

crisis and signicant adverse eects on trade

fows.

The short all in trade nance seems to have

been a moderate actor in the sharp drop in

global trade fows during the crisis, which was

mostly a result o the spillover o the nancial

crisis to the real economy, lower activity and

inventory de-stocking. Nevertheless, the impacton trade by SMEs, especially those based in

low-income countries with underdeveloped

nancial systems, was considerable. Post-crisis

surveys and data on trade nance indicate

signs o improvement in this regard.

Two years into the crisis, a look at the

institutional response in providing trade nance

conrms that it has been timely and substantial.

In the midst o the crisis, the international

community responded switly spearheaded

by the G-20 in committing USD 250 billion

over the course o two years in unding or

co-nancing arrangements that support trade

transactions. This was implemented through

a partnership between development banks,

export credit agencies, oreign commercial

banks, private insurance underwriters and

investment unds. While the G-20 support was

mainly directed at large banks and international

banking institutions, the World Banks private

arm, the International Finance Corporation, and

the regional development banks stepped in

as well to target their eorts at smaller banks

and banks in developing countries. With the

continued uncertainty in trade nance markets,

particularly or low-income countries and

small rms, governments and international

organizations need to be cautious about the

timing and pace o the withdrawal o these

trade nance programmes.


29/76


Section 3 Trade fnance statistics:Global and regional trends

Trade is rebounding

The responses to the ICC Survey questionnaire

appear to conrm that the nancial problems

that were impacting trade as a whole in 2009

have diminished.

In 2009, we reported that the world was

acing the most severe recession since the

Great Depression, which originated in deve-

loped countries but had been spreading to

developing countries at ever-increasing speed.

Emerging markets were more directly aected

in 2008 because they were more nancially

integrated. Low-income countries were also

harmed because o lower commodity prices

and ewer remittances. GDP growth or

developing countries was severely impacted,

with negative growth in the 3-6% range or

some regions.

The deterioration o trade was elt worldwide in

2009. According to respondents, in 2010 the

situation had changed. Volumes in 2010 were

up in most traditional trade products, the overall

value o trade nance transactions was also up

and the percentage o trade credit lines that

were cut or corporate and nancial institution

customers ell markedly. Fees or bank under-

takings and letter o credit conrmations

appeared to have settled down and mainly

fattened during the course o 2010.

In terms o volume, respondents seeing an

increase outpaced those seeing a decrease

by a ratio o around 3:1. From the nancial

institutions responding, 58% reported an

increase in export L/C volume and 66% an

increase in import L/C volume. Considerable

increases were also reported or guarantees

(42% on the export side and 48% on the

import side). Increases o 49% were seen

or collections on both the export and import

sides, and this may still refect the act that

corporates sought a change rom open

account transactions by having the banking

system act as custodians or their documents.

Figure 12 Export processingvolume trends 2010

Figure 13 Import processingvolume trends 2010

Collections37%

14%49%

Guarantees

44%14%

42%

Standby Letters o Credit61%

9%30%

Commercial Letters o Credit23%

19%58%

No change

Decrease

Increase

Collections31%

20%49%

Guarantees33%

19%48%

Standby Letters o Credit47%

13%40%

Commercial Letters o Credit11%

23%

66%

No change

Decrease

Increase

Figure 11 Value o trade nance activity between 2009 and 2010

Increase 86%

Decrease 14%

86%

14%


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Only 12% o respondents indicated that their

trade credit lines or corporates decreased in

2010. This compared avourably with a 40%

decrease indicated in last years Survey. Some

69% reported an increase in credit lines when

compared with 2009. At the same time, only13% indicated that their trade credit lines or

nancial institutions declined in 2010, and 53%

mentioned that those or nancial institutions

had increased in 2010.

Where respondents reported a decrease in

trade credit lines, the principal reasons given,

in order o cause, were the ollowing:

n more stringent credit criteria being applied;

n selective exiting o customer relationships

due to credit deterioration;

n exiting markets;

n reallocation o and/or rened credit line limits

to refect past usage; and

n capital allocation restrictions

Despite the positive signs with regard to trade

credit lines, respondents still reported that they

were competing internally or each unit o the

banks scarce capital.

Trade nance demand

Trade nance demand was sustained

in 2010

The 2011 Survey continued to address

issues related to demand. According to

respondents, trade nance is still very much in

demand. However, a shortage o liquidity and

disproportionate aversion to risk continue to

drive up interest rates on loans and advances

in a number o countries, especially in emerging

markets. The ollowing was noted in the ICC

Survey:

n 83% o respondents indicated they had

experienced an increase in demand or

the issuance o bank undertakings during

2010, a considerable increase on the 2009gure o 50% and urther evidence o the

continued increased security sought by

exporters or their shipments;

n 73% o respondents who had experienced

an increase in demand reported they had

been able to satisy their customers needs

to a large extent; and

n 74% o respondents reported they had

experienced an increase in conrmation

requests in 2010. This was almost exactly

the same gure reported in the 2010 Survey

(73%) and, again, a strong indication o the

increased security sought by exporters and

the perceived payment risk o the country o

the issuing bank;.

n 81% o respondents expected an increase

in demand or traditional trade products in

2011 (down rom 84% in 2010); and

n 86% o respondents indicated an increase in

the total value o their trade nance activity in

2010.

Trade nance instruments gained

prominence

Many respondent banks to the ICC Survey

continued to comment on an increase in

demand or documentary credits (L/Cs). These

instruments are considered to substantially

reduce risks or both the exporter and the

importer. Not surprisingly, thereore, the docu-

mentary credit today is seen as the classic

orm o international export payment, especially

in trade between distant partners. Other

trade nance instruments were mentioned

by respondents, including guarantees. With

the greatest economic crisis since the Great

Depression still a resh memory, guarantees

Figure 14 Availabili ty o trade nance

Trade credit lines (corporate)19%

12%69%

Trade credit lines (FI)34%

13%53%

No change

Decrease

Increase


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were said to provide greater security in trade,

as they are designed to restore condence by

protecting the parties against perormance

breaches without the need or businesses to

post onerous cash deposits to secure their

perormance duties.

ICC noted that there was an increased demand

or implementation o ICC rules governing trade

nance. For instance, we witnessed continued

demands or training on the use o the Uniorm

Rules or Demand Guarantees (URDG), which

apply to billions o US dollars o guarantees and

secure monetary and perormance obligations

in a wide array o international and domestic

contracts. The same trend was ound or UCP

rules applying to documentary credits.

This trend was conrmed rom data collectedin the ICC Survey. Figure 15 shows that

L/Cs remained the predominant settlement

product. However, the data or open account

trade should be understood in the context

that the Survey was directed at individuals

located in the oces o banks that typically

deal with traditional trade nance instruments.

Historically, open account trade has been

understood to represent around 80-85% o

world trade. It is widely expected that this

gure ell between 2007 and 2010 as exporters

sought a more secure method o settlement.

Aordability o trade nance

The 2011 Survey continued to address issues

related to pricing. We noted the ollowing:

n Around 75% o respondents indicated that

their ees or issuance o bank undertakings

had not changed in 2010. Where ees had

changed (decreased or increased), this was

mainly conned to a range o 1-25%.

n 78% o respondents anticipated that their

ees or the issuance o bank undertakings

would not rise in 2011.

Some 12-15% o respondents reported an

increase in ees or commercial letters o credit,

standbys and guarantees (Figure 16). This was

on top o the 30% o respondents reporting

increased ees in the 2010 Survey and the

signicant increases that occurred between Q4

2007 and Q4 2008.

Other2%2%

Open account7%

11%

Collections18%

23%

Guarantee

21%15%

Standby letter o credit10%

7%

Letter o credit42%42%

Import

Export

>50% decrease0%0%0%

26-50% decrease1%1%1%

1-25% decrease11%

8%10%

No change73%

75%71%

1-25% increase12%12%

15%

26-50% increase2%2%2%

>50% increase1%

1%1%

Guarantees

Standby LCsLetters of Credit

Figure 15 Product mix, by percentage, ointernational trade products handled by banks

Figure 16 Change in ees or issuanceo bank undertakings

Central &

Latin America


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The 2011 Survey also revealed that requests

or conrmation o commercial letters o

credit (74%) remained at the same level when

compared with the 2010 Survey (73%) (Figure

17).

At the same time, 18% o respondents

reported urther increases in ees or conrming

commercial L/Cs in 2010 (Figure 18):

n 3% indicated an increase in ees or conrm-

ing commercial letters o credit o between

26-50%;

n 15% indicated an increase in ees or

conrming commercial letters o credit o

between 1-25%.

In addition:

n 12% reported a decrease in ees or

conrming commercial letters o credit o

between 1-25%; and

n 83% said they do not expect any change

in ees or conrming commercial letters o

credit in 2011.

Operational impacts

The number o court injunctions and

reusals still remains high

Last years Survey reported that 23% o res-

pondents had seen an increase in the number

o court injunctions barring payment under

letters o credit. Some respondents also report-

ed intense scrutiny o documents by some

banks, leading to higher rates o rejection o

trade documents under L/Cs or minor or non-

existent discrepancies.

From the 2011 Survey, we conclude that these

problems still persist. The ollowing should be

noted:

n 34% o respondents (same as the 2010

Survey) experienced an increase in the

number o reusals by issuing banks in 2010;

n 85% o respondents (up rom 71%), when

acting in the capacity o a nominated bank,

reported they had experienced an increase

or no change in the number o spurious/

questionable reusals; and

n Some 5% o respondents (down rom 11%)

had taken their own decision to reuse

and return documents without seeking a

waiver rom their clients. The same res-pondents indicated that on average they

had only taken this course o action less

than ten times in 2010. This compares

with the 11% who reported in the 2010

Survey that they had done this less than

ve times in the previous three years. These

actions by banks clearly demonstrate

their unwillingness to extend urther

credit to clients by allowing them to waive

discrepancies (Figure 20).

n 34% o respondents indicated an increase

in the percentage o documents reusedon rst presentation. In most cases, this

was due to stricter document examination

processes being implemented. Respondents

reported an average 48% reusal rate when

they were the issuing bank and 53% when

they were acting as a nominated bank.

These gures seem to be on the low side

when compared to other market gathering

exercises.

n At the same time, we noted that the number

o discrepancies and claims were still quite

high. 17% reported an increase in thenumber o spurious discrepancies in 2010

(while 15% said there had been a decrease

in that year (down rom 29%), and 68% said

Increase 74%

Decrease 26%

74%

26%

Figure 18 Change in conrmation ees

Figure 17 Requests or conrmations

>50 decrease

0%

26-50% decrease

0%

1-25% decrease

12%

No change

70%

1-25% increase

15%

2650% increase

3%

>50% increase

0%


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there was no change which eectively

means that this remains a big issue)

(Figure 21). Similarly, 40% o respondents

indicated that there had been an increase

in the number o claims under guarantees

and standbys in 2010 (with 60% reportinga decrease) (Figure 22).

Issuing banks reported that pressure rom

applicants to reuse documents was down

rom 17% to 6%. Where this was still an

issue, the main reason cited continued to be

alling commodity prices (Figure 19).

40% o respondents (down rom 44%) indi-

cated an increase in the number o claims

received under standby letters o credit and

guarantees. This refects the value o the

additional security and the previously reported

demand or this type o undertaking.

The 2011 Survey also showed that 26% o

respondents (up rom 23%) had experienced

an increase in the number o court injunctions

stopping payment under bank undertakings.

This shows that parties are seeking legal

remedies to opt out o their obligations undera sale or perormance contract. In response to

a new question relating to instances o raud

allegations, 25% o respondents reported an

increase over 2009 levels.

No major change in risk ratings

69% o respondents indicated that the criteria

they applied or rating the risk o traditional

trade products did not change in 2010, with

some 31% reporting that they did.

Loss experience o traditional trade

products versus general banking acilities

Banks continued to report that customers

are asking or conrmed letters o credit,

though they previously had worked with un-

conrmed L/Cs, documentary collections or

open account. However, bank perception o

risk is still leading to a tightening o liquidity in

some instances, which is causing diculty in

obtaining bank conrmations in some regions.

In March 2011, this situation still prevailed,

but not at the levels experienced in 2009.

Other key points noted in the ICC Survey

are as ollows:

n 49% o respondents reported that their

level o actual losses when using traditional

trade products was more than 75% less

than losses incurred using general banking

acilities. It is important to note that 98%

reported that the level o losses incurred in

traditional trade products were the same

or lower than losses or general banking

acilities (96% in the 2010 Survey);

Figure 19 Increased applicant pressure to reuse documents

Figure 20 Reused documents without seeking/accepting waiver

Figure 21 Increased number o spurious discrepancies

Figure 22 Claims under guarantees and standbys

Yes 5%

No 95%

95%

5%

Yes 94%

No 6%

94%

6%

Increase 17%

Decrease 15%

No change 68%

17%

15%

68%

Increase 40%

Decrease 60%

40%

60%


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n Only 2% o respondents said that their

losses under general banking acilities

were l

ICC 2011GlobalSurvey

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