ICC Finds Worrisome ‘Global Shortage’ Of Trade Finance

Banks are reportedly growing more concerned over what could be a “global shortage” of trade finance, according to new research from the ICC 2016 Global Survey on Trade Finance.

The International Chamber of Commerce found that financial institutions are grappling with this shortage, while SMEs are themselves facing rising rejection rates in their pursuit of trade financing. According to the report, 61 percent of banking respondents said there is a global shortage of trade finance. There has been a 9 percent decline in the number of banks reporting an increase in trade finance activity this year, compared to 2015.

Regional and global banks are more likely to report a lack of trade financing, compared to global banks, the ICC added.

Meanwhile, most rejections for trade finance applications are handed to SMEs — 58 percent of rejections, researchers found. That’s despite the fact that SMEs only account for 44 percent of trade finance applications. Large corporates, however, submit 40 percent of all trade finance applications yet are dealt just 33 percent of rejections.

“We must emphasize the importance of trade finance,” said ICC Secretary General John Danilovich in a statement. “It is often forgotten — trade finance has dropped off the international agenda. We need to do more to communicate its central importance to the global economy.”

Banks cited stringent regulations, like AML and KYC, as top barriers to trade finance expansion — 90 percent said the cost and complexity of these regulations is their top challenge in this space. The majority of survey respondents said they expect these hurdles to grow only taller this year and beyond.

“This year’s survey highlights the challenges ahead, revealing that compliance is one of the main impediments to trade finance provision — with the majority of industry players only expecting complexity and cost to increase further over the rest of the year,” summarized the chair of the ICC’s Banking Commission, which conducted the survey, Daniel Schmand. “Urgent action is required to limit the effects of such requirements on trade finance provision and to help meet the needs of global SMEs, which are being disproportionately affected.”