ICC survey reveals declining global trade finance

According to the ICC 2016 Global Survey on Trade Finance, SMEs and African countries are most affected by a deepening global trade finance gap.

From the 357 received responses in 109 countries worldwide, 61% of respondents reported a global shortage of trade finance while only 52% of respondents reported an increase in trade finance activity, compared to 63% in 2015 and 80% in 2012. Furthermore, the perceived shortfall came predominantly from regional and global banks (78% and 56% respectively, compared to 41% of national banks).

What’s more, the Global Survey also shows that SMEs face 58% of total rejections despite submitting 44% of all trade finance proposals, in contrast to 40% submitted by large corporates (33% of rejections) and 16% by multinational corporations (9% of rejections).

Some of the impediments mentioned in the survey include the cost and complexity of compliance requirements relating to Anti-Money Laundering (AML) and Know Your Customer (KYC) regulation (90% of respondents reported it, up from 81% in the 2015 Global Survey). 40% of respondents reported terminating banking relationships due to compliance requirements with 83% expecting compliance costs to increase in 2016. Other impediments to trade finance noted by respondents included low issuing bank credit ratings (86%), low country credit ratings (82%), regulatory requirements (76%), and low obligor or company ratings (70%).

A decrease in the use of traditional trade finance was also evident in this years Global Survey report, with nearly 50% of respondents reporting a decrease in commercial Letters of Credit, while nearly 35% reported an increase in supply chain finance deals.

This years Global Survey also draws attention to the benefits that digitisation brings to the industry - particularly by automating processes and reducing the cost and complexity of trade finance. Despite this, only 7.4% of banks reported that their trade finance processes had been digitised to a great extent while 43% reported very little advancement, with global banks the most likely to embrace digital solutions. However, the Global Survey predicts an acceleration towards digitisation in the years to come for the trade finance industry.

ICC also focused on the increasing engagement of African economies and businesses in international trade and discovered that while intra-African trade has shown signs of significant growth (accounting for nearly 18% of the regions total trade in 2014, an upward trend from 10% in 2010), intra-African investment accounts for only 12% of the total value of investment in Africa, in comparison to 33% in Asia. In addition, 66% of businesses find access to finance a significant obstacle to trade in Africa.