ICC Trade

ICC GUIDING DRIVING
BANKING INTERNATIONAL CHANGE IN

COMMISSION BANKING PRACTICE TRADE FINANCE
ICC BANKING
COMMISSION
The world’s essential rule-making
body for the banking industry
ICC is the largest, most representative RULES

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2018 GLOBAL TRADE – SECURING FUTURE GROWTH

and guidelines for international banking practice. ICC rules
global network comprises over 6 million on documentary credits, UCP 600, are the most successful
privately drafted rules for trade ever developed, serving
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business associations in more than 130
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2018
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GLOBAL TRADE
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ICC GLOBAL SURVEY ON TRADE FINANCE

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EDUCATION AND CERTIFICATION

The ICC Academy is the world business organization’s ICC GLOBAL SURVEY ON TRADE FINANCE
ground-breaking e-learning platform. Its industry-relevant
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SPECIALIZED TRAINING AND EVENTS

In addition to its bi-annual summit gathering 300+ international
Trends in international trade and supply chains
delegates every six months, the ICC Banking Commission
organizes regular seminars and conferences around the world, in Developments in trade financing operations
partnerships with ICC National Committees and other sponsors.
STRATEGIC PARTNERSHIPS Regulation and compliance

Well-established collaboration with leading policymakers and
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Digitisation and transformation
ADB (Asian Development Bank), Berne Union, EBRD (European
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Tenth Annual Edition

The International Chamber of Commerce (ICC) is the
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We work to promote international trade, responsible
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Editorial Team
Alexander R. Malaket – Opus Advisory, Chair,
Dominic Broom – BNY Mellon,
Mark Evans – ANZ,
Dave Meynell – TradeLC Advisory,
Olivier Paul – ICC Banking Commission,
Dan Taylor – DLTAYLOR Consulting,
Jun Xu – Bank of China,
Vincent O’Brien – ICC Banking Commission
Sponsorship Manager
Sandra Sanchez Nery, ICC
Design
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Background information Find more online References and notes

We would like to
thank our sponsors

In this report
Foreword/John W.H. Denton AO, Secretary General, International Chamber of Commerce 5
Message from the report Chair/Alexander R Malaket, Market Intelligence Chair, ICC Banking Commission 7
EXECUTIVE SUMMARY
Wrap up of 2018 report/Boosting growth, prosperity and inclusion through trade 9
MACROECONOMIC CONTEXT
FOR TRADE AND FINANCE
Setting the scene/Roberto Azevêdo, Director-General, WTO 23
Global economic outlook/Protectionism and reform complacency could imperil a sustained recovery 25
Global trade and supply chains/Growing anew, but for how long? 31
Commodity trade finance/La vie en rose? Not quite 35
FINANCE FOR TRADE

Setting the scene/Arancha González, Executive Director, ITC 39
ICC Global Survey on Trade Finance 2018/Where banks stand on strategy and operations 41
SWIFT trade traffic/The year in review/A major category 7 upgrade is underway/Watch Traffic 61
TXF-ICC Export Finance Survey/Profits hold up amid mixed views on the market 75
Export Credit and Investment Insurance/Strong performance, but political risks cast a long shadow 81
Multilateral development banks/No letup in expansion 91
REGULATION AND COMPLIANCE

Setting the scene/Sir Michael Rake, CEO, Worldpay 111
Making trade finance attractive investments/What it would take 113
Trends in trade finance regulation/Dealing better with anti-money laundering 117
Risk-based regulatory compliance/Back to basics for better surveillance 119
Basel IV/Will new rules help or hurt the market for trade finance? 123
Regulating business/The two pillars of ethical regulation 125

TRANSFORMATION
Setting the scene/Daniel Schmand, Chair, ICC Banking Commission 129
Digital trade/Plotting the path to transformation 131
Digitising trade/Kicking it into higher gear 139
Conflicts in trade finance laws/Time to get your clauses in order 143
Digital forfaiting/Making distributed ledger tech real 145
ICC’s work on sustainable trade finance/Blueprint in the making 147
Voluntary Sustainability Standards/Schemes are spreading 151
SPOTLIGHT
Global trade in 2028/Singapore’s digital trade finance journey 157
From the Field/How China finances its growing trade and globalisation 159
SINOSURE view/What’s driving China’s galloping growth in trade finance? 163
Acknowledgments 165

INTRODUCTION
Foreword/John W.H. Denton AO
Foreword
By John W.H. Denton AO
John Denton is Secretary General, International Chamber of Commerce
As the ICC Banking Commission held their Annual Meeting

in Miami last April, the chosen theme—“Navigating trade in a
world of disruption”—could hardly have been more prescient.
In the weeks preceding the meeting, the world’s two largest
economies had announced new sets of trade-restricting
measures, prompting stock markets to tumble and
concerned voices around the world to warn of an
impending “trade war”.
The ICC Banking Commission Digital technologies, from big data developing world to access much-
began its work in the 1930s, as the to blockchain, are also transforming needed financing.
world was facing a different tide of the global trade finance industry,
As one standout finding of the
nationalism and protectionism, and bringing in a new generation of
Global Survey demonstrates, banks
in many ways neatly encapsulates players and business models and
headquartered in Africa are now
much of ICC’s mission and track driving the movement towards
almost twice as likely to expect
record of setting global standards paperless trade.
the trade finance gap to widen.
and rules that enable and govern
From its creation ten years ago, Following ICC engagement with the
world trade.
the Global Survey has offered an UN and national governments in
Since their publication, ICC’s rules unparalleled snapshot of the many 2017, the trade finance gap and its
for documentary credits have challenges and opportunities facing negative implications for economic
since become the most successful the trade finance industry and, most development were recognised, with
privately-drafted rules for trade importantly, puts these trends in the UN committing to carry out an
ever developed. Every year, trade their private sector context. To take official review of the gap and its
transactions of over US$2 trillion digitalisation for example, the Global causes. Bringing a greater number
are conducted on the basis of these Survey moves beyond the much- and diversity of companies into
ICC rules. ICC’s uniform rules for heralded forecasts of how ripe trade the international trading system
forfaiting—the first ever developed— finance is for digital disruption to will be key to building popular and
were officially endorsed by the assess the extent to which banks political support for trade in the
United Nations (UN) in July 2017, around the world are actually years to come and in turn unleashing
recognising the important place going paperless on the ground. A trade’s enormous potential to
already occupied by the rules in the better view of where businesses help us collectively reach the UN’s
private sector. are at will allow public and private Sustainable Development Goals.
stakeholders to more effectively
As the only private sector Observer
A better vantage point drive sustainable growth for trade
to the UN General Assembly and a
finance in the 21st century.
to drive growth leading voice for global business
Reliable and cost-effective financing across intergovernmental forums,
is integral to the global trading
Mapping challenges for ICC has long held that an inclusive
system, helping companies to collaborative solutions and evidence-based policy process
mitigate the risks and costs involved The same can be said of regulation. can drive global economic growth
in the international flow of goods. This year’s Global Survey and further development goals.
This role makes the trade finance consistently shows that regulatory The ICC Global Survey is a concise
industry particularly sensitive to issues are among respondents’ demonstration of this conviction
the politics of world trade, and—as top concerns. Looking at further and it is my belief that its findings
this tenth anniversary edition of the research from ICC and other actors, will contribute to informing an
Global Survey report demonstrates— it is also clear that some financial international policy process that
this is only one of many trends that regulations governing banks have aims to share the gains of trade
that banks are factoring into their had the unintended consequence more widely among countries too
risk assessment as they gauge the of widening the trade finance gap, often see each other as zero-sum
economic horizon. making it more difficult for smaller competitors. Happy reading.
companies and traders in the

INTRODUCTION
Message from the report Chair/Global Trade – Securing Future Growth
Message from the report Chair/

Global Trade – Securing Future Growth
By Alexander R. Malaket CITP, CTFP
Alexander R. Malaket is Chair, ICC Banking Commission Market Intelligence
Trade deficit bad. Protectionism delivery channels: these all We asked these experts game-
good. Exports good. Imports bad. expand execution and accelerate changing questions: how can we
transaction lifecycles. Combined, safeguard the planet, its inhabitants,
Surely we can do better, even in
they offer the promise of true and global economic growth? Can
these highly politicised, cynical
transformation, and spreading the we achieve effective and balanced
times.
benefits of trade more fairly, and regulation with Ethical Business
Informed, thoughtful and into the deepest links in global and Regulation (EBR)? The report
statesman-like dialogue on regional supply chains. provides data and fact-based
international trade is more urgent assessments of digitalisation’s
In these new realities trade will help
than ever. That is the backdrop effects on trade finance and the
secure global economic growth.
against which this 10th anniversary 200 billion data filed interactions,
edition of the Banking Commission’s Sustainable success demands more and gauges the impact Berne Union
flagship edition is being published. than developing and deploying members have on 14% of global
technology; more than adopting merchandise trade. It also brings
Trade today is about much more
new business practices, and even into relief the annual trade finance
than one nation or one trading
more than rebuilding trust with gap, now US$1.5 trillion, and the
partner winning at the expense of
society, so business can do well by economic value and potential it
another. It is about much more than
doing good, so trade can be win/ represents to make trade more
straightforward imports or exports,
win. inclusive.
and the simplistic, zero-sum rhetoric
of the day. Success in fulfilling the promise This anniversary edition is rich
of trade demands thoughtful, in market data, observations
So experts must communicate
effective advocacy: tell the story and analysis. Readers can look
clearly and compellingly on trade
in a compelling way of why trade at the information provided
- and move beyond dispassionate,
matters and is worth pursuing in from a practical, transaction and
academic discourse.
an open, rules-based, and more operational view or a strategic
Trade is on its way to regaining its open architecture, and why it view. Readers can use the insights
familiar, pre-crisis position as an is imperative for leaders and and data to advocate internally or
engine of global GDP growth. The influencers to take a wider view of engage influencers and leaders at
fundamental role of trade-related international commerce. the highest levels of policy, political
financing and risk mitigation is now and international circles.
This year’s edition of the ICC
broadly acknowledged, and there
Banking Commission’s “Global Our sincere thanks to all who
is a more informed view of the
Trade – Securing Future Growth” made this 10th edition, including
importance of sustainability in trade
report contributes to this dialogue, our Editorial Board, the Banking
and global supply chains. Above all,
viewed through the lens of trade Commission team in Paris, the
there is greater appreciation for the
finance and supply chain finance, authors and contributing partners,
importance of equitably distributing
which trade relies on. and the partners and sponsors
the benefits of trade around the
cited on the acknowledgements
globe. The core analysis of key findings
page. And above all, thanks
from the annual survey is enriched
Digitalisation of trade, both in to our readers. We hope this
by contributions from leading
the physical supply chain and in publication will help you navigate
thinkers and influencers on
the financial supply chain, will and better understand the trade
global trade and trade financing.
reshape trade in fundamental corridors, supply chains and global
The report presents a powerful
ways. The application of disruptive architecture that enables trade
combination of messages for a more
technologies, increasingly flows worth many trillions every
thoughtful, inclusive and mutually
ubiquitous platforms that enable year.
beneficial outlook on international
trade, and the common application
trade for all.
of the latest technology to expand

“Free trade is not a philosophy
for the narrow minded or the
faint hearted”.
Douglas Hurd, UK Foreign Secretary
“We have to get back to basics

on trade: explain to people
again and again trade benefits
both parties, and is at the
heart of our welfare and that of
emerging economies of every
generation throughout history.”
Karel De Gucht, European Commissioner designate,
Trade College of Europe

EXECUTIVE SUMMARY
Wrap up of 2018 report/
Boosting growth, prosperity and inclusion through trade
With the 10th anniversary title, “Global Trade – Securing Future Growth”, the annual
publication shifts from its previous title “Rethinking Trade & Finance”, also highlighting
the linkages between trade financing and the successful pursuit of international trade,
now well established, to bringing back into focus trade as a driving force in global
economic growth, prosperity and inclusion. An overview and executive summary
of the report’s key findings - with a global context and macro view; results from the
ICC Global Survey on Trade Finance 2018 and further insights into trade financing
matters; regulation and compliance; digitisation and technology and transformations
in sustainable trade finance; as well as a spotlight on trade, finance, and digitisation in
Singapore and China. Page 9-20

EXECUTIVE SUMMARY
Wrap up of 2018 report/Boosting growth, prosperity and inclusion through trade
Wrap up of 2018 report/

Boosting growth, prosperity and
inclusion through trade
The annual ICC Banking Commission survey and
report on trade and trade financing, originally
titled “Rethinking Trade and Finance”, now
adopts a new focus. With the 10th anniversary
title, “Global Trade – Securing Future Growth”,
the annual publication shifts from highlighting
the linkages between trade financing and the
successful pursuit of international trade, now
well established, to bringing back into focus
trade as a driving force in global economic
growth, prosperity and inclusion.
This year’s publication is recognised, rule-making and can drive global economic growth
underpinned by the most standard-setting, regulatory and and further development goals.
comprehensive and authoritative policy advocacy, and contributions The ICC Global Survey is a concise
survey on global trade finance, with to make trade and trade financing demonstration of this conviction
views collected from 251 banks more inclusive and sustainable. and its findings also intend
headquartered in 91 countries. to contribute to informing an
The ICC Banking Commission
international policy process to share
But it is much more than the ICC advocates and champions trade
the gains of trade more widely.
global survey on trade finance and and trade financing at the most
its analysis: it is a platform for trade
and international commerce to
fundamental, transactional level and
at the highest level of business and
An inclusive and
share perspectives. The insights and policy. evidence-based
views will help drive strategy, shape
As John W.H. Denton AO, ICC’s policy process
policy and regulation, conceive of
and carry out innovative solutions.
new Secretary General, notes can drive global
in his Foreword, ICC is the only
The publication aims above all
private sector Observer to the UN economic growth
contribute to trade-based growth
General Assembly and a leading
and economic inclusion globally. Through numerous expert
voice for global business across
contributions also summarized
The report also touches on the intergovernmental forums. It has
below, this report is an important
major areas of Banking Commission long held that an inclusive and
part of the commission’s efforts
activity, including globally- evidence-based policy process

to advocate and champion trade impact of automation. Yet as the World trade grew
and trade financing at the most World Bank suggests, the attention
fundamental, transactional levels on technology and job loss ignores faster in 2017 than
and at the highest strategic levels that even in developing economies, in the five previous
of business and policy. the risk from technology is much
less than portrayed, and estimates years
Context and macro view show it will affect 2% to 8% of jobs.
More work is to be done, and
Leading market observers say thoughtful stewardship of the
trade is on the cusp of regaining
In developing global trade and economic system
its place as a driver of the global economies, is more important than ever. Before
economy, and finally showing signs
of keeping pace with global GDP
automation will the global financial crisis, trade
grew twice as fast as GDP from
growth and even poised to outpace affect 2-8% of jobs 1990 to 2007. In recent years, from
it. Even as there are worries about 2011 and to 2016, trade and GDP
Arancha González, Executive
damage to the global recovery growth were comparable. While
Director of the International Trade
from ill-informed and ill-advised trade is showing signs of becoming
Centre in Geneva, emphasizes why
protectionism, isolationism, and an engine of growth again, it will
closing the US$1.5 trillion trade
a return to mercantilist, zero- take much effort to reach historical
finance gap really matters and the
sum views of international levels.
key role international institutions
commerce, there are more positive,
must play. In that vein, she Systemic factors such as mature
constructive signs shaping the
mentioned the last WTO Ministerial global value chains and the slow
future of trade and trade financing.
in Buenos Aires which produced pace of trade liberalisation (to say
Protectionism and a Declaration on Women and nothing of possible reversals) will
make it difficult to reach similar
Trade, backed by over 120 member
the risk of a trade states. The declaration referred to growth rates in trade, without
war could put the access to trade finance for women, supportive developments, such as
to redress the disproportionate, signs of recovery in commodity
recovery at risk gender-skewed rejection rates markets, says long-time practitioner
for women entrepreneurs seeking and globally-recognised expert,
In the report, WTO Director
credit. Jean-Francois Lambert.
General Roberto Azevêdo points
to a five-year period of growth and Analysis by the Boston Consulting
recovery, noting that protectionism
Financial Group estimate global trade flows
and the risk of a trade war could institutions reject will hit a record US$24 trillion by
2026; with the most optimistic
put the recovery at risk. At the
same time, Azevêdo says the
2.5 times more scenario projecting trade finance
historic achievement of the Trade applications from revenues will reach US$48 billion
Facilitation Agreement has the female than male in the next three years, at growth
rates just exceeding 6% a year. BCG
potential to advance the conduct of
global trade. entrepreneurs says dynamics worth monitoring
are increased flows of RMB-
After a decade of collaboration This is the latest sign that
denominated trade and a potential
between the WTO and the ICC, international development
pickup of asset securitisation in
the WTO Director General still organisations recognise how
trade.
strongly advocates in support of important women are to boost
trade financing, including for more
access to trade finance for SMEs.
economic growth in developing Trade finance
countries.
As the debate continues about revenues projected
World Bank analysts expect
trade and its impact on jobs and
economic growth to be robust, to reach US$48
national competitiveness amid
misinformation and distortions,
especially in developing and billion in the next
emerging markets. Analysts
the WTO states what others have
forecast global GDP will grow 3.9% three years
hinted at: the challenge to some
in 2018 and 2019, with emerging
occupations and economic activity According to SWIFT data, the US
Asia to grow 6.5% over the same
is more from technology, not trade. dollar is still the most frequently-
period. World trade grew faster in
used currency in the SWIFT
With more than 400,000 industrial 2017 than in the five previous years,
network for trade finance activity.
robots to be installed on shop at about 4.5% during the first 10
For example, just over 83% of
floors in China this year, Chinese months, they estimate.
documentary credit traffic is
“smart factories” show the potential
denominated in US dollars. The

EXECUTIVE SUMMARY
euro is a distant second at less than Trade financing: market lines to support trade financing.
9% and the RMB (CNY) is used in Notably, insufficient credit facilities
research and data
less than 3% of L/C transactions. remain a major reason for the
The report presents the
continued dropoff in trade financing.
SWIFT data clearly show the US perspectives of 251 banks in 91
dollar’s dominance in trade-related countries in the ICC Global Survey Digital trade and trade financing
SWIFT traffic. However, the fast on Trade Finance and 65 senior are top of mind among leading
growth of the RMB across all forms export finance leaders in the TXF- practitioners. While there is promise
of trade activity – that is, beyond conducted survey. The usual, data- and progress in technical capability
traditional trade finance covered rich and informative contributions of and the degree of market readiness
by the SWIFT MT400 and MT700 the Berne Union provide a detailed for significant uptake, most
Messages – merits attention, and comprehensive view on the observers recognise that achieving
particularly as the geopolitical state of trade financing globally. meaningful degrees of digitisation is
implications of currency use in possible in the medium-term in the
Contributions from our partners,
international commerce get more best case. Survey results indicate
the multilateral development
attention. that only 15% of respondents see
banks, were coordinated by Thierry
transformative potential in applying
Signs are positive Sénéchal of Paris-based Finance
technology to digitise and increase
for Impact, in a comparable and
for economic growth easy-to-read table, plus an overview
trade finance sales.
and recovery, and the of activities from each organisation, 15% of respondents
with their contributions and views
trajectory of trade on trade financing in developing see transformative
growth and trade- markets. potential
based development is In the ICC Global Survey on Trade in applying
Finance, 47% of respondents report
promising traditional trade finance (TTF) and technology to
The takeaways at the macro level supply chain finance (SCF) are digitise and
are: signs are positive for economic organized in the same business
growth and recovery, the trajectory unit. The survey shows there is still
increase trade
of trade growth and trade-based a clear focus on traditional trade finance sales
development is promising. Also, finance, with 85% of respondent
there are positive signs for large activities in this area, versus 15% in The study also measures real
upside potential in trade financing, SCF. This is, of course, the reverse progress toward digitised processes
both in capacity globally and in of the market: in the vicinity of 80% in trade finance. It presents an
growing revenue pools for the of trade activity is on open account assessment of banks’ maturity
provision of traditional trade finance and better suited to SCF solutions in using technology solutions to
(TTF) and supply chain finance than traditional mechanisms. achieve benefits (reduced time
(SCF). and costs, improved precision
Two thirds of banks reported values associated with trade-related due
On the more sobering side, the increased of traditional trade diligence) with results indicating
global recovery is still vulnerable finance provided to the market, that 12% would be rated as mature,
to large swings and unexpected while 43% reported their book of 49% in a developing phase and 37%
shocks. These include protectionism business in SCF grew the previous noting that they do not currently
through non-tariff measures (NTMs), year. 83% of banks reported they have digitalisation on their agenda.
ill-considered and inflammatory had explored at least one new
rhetoric, and a return to narrow market in 2016, with a large portion Nearly half of
views of international commerce reporting increases in their trade
and cross-border investment flows. credit lines, particularly for mid-cap respondents are
clients, where 48% of respondents in the process
The global recovery saw an increase in available credit
of implementing
facilities.
is still vulnerable to technology
The large corporate and
large swings and multinational segment fared solutions
unexpected shocks nearly as well. However, financial
institution (FI) clients saw their Paper is still widely used in
access to trade finance-related documentary transactions. About
credit contract, the least favourable 35% of respondents acknowledge
trend year-on-year. 22% of that removing paper in the initiation
respondents reported reduced FI stage and the settlement stage

of a transaction, the two more institutions, trade finance is granted expect the export finance market
automated parts of the transaction little more than passing attention will grow as much as 10% in 2018.
lifecycle, is incomplete. In document from executive management, they
Pricing was a focus in this year’s
verification, where the impact of believe. Some banks cite CEO
survey. One practitioner said export
using paper is most costly and time engagement as a competitive
credit agency (ECA) finance “has
consuming, 52% of respondents advantage in trade financing.
always been expensive”. When
indicated that no solution has been
It was surprising that a vast asked about what prices will be
implemented in this very mature
majority of respondents report in the next year, nearly half (46%)
area of TTF.
very good to excellent support expect prices to stay the same,
52% indicate no from key internal stakeholders.
That might lead one to conclude
while one third see an increase, and
23% see prices continuing to fall.
solution has been respondents fear presenting a Some expect key reference rates to
implemented for candid picture of reality on the rise, which would help improve and
ground, on the possibility that their stabilise margins.
document verification responses could be tracked back
Practitioners should be worried that
in trade finance to them. It should be noted here
export finance is showing some
that participation in the survey is
operations confidential, but the ICC encourages
signs of a ‘race to the bottom’ on
pricing – a scenario that has all but
The commitment to TTF runs banks to coordinate internally so
commoditised traditional short-term
contrary to global trade trends. that only one response per bank is
trade finance and eliminated the
The shift to open account and submitted in the study in order to
opportunity for value-based pricing
by extension to SCF-related avoid duplication or multiplication
discussions with clients.
solutions, is all but universal of inputs and data received.
across geographic markets and The survey raised this issue of trade Nearly half of
client segments. The underlying
reason may be the profile of banks
finance support and understanding
to start a dialogue internally in
respondents expect
surveyed and the reality that banks and in the industry. As the export finance
deploying SCF programmes is
limited to large global banks and a
discovered a decade ago, regulatory market will grow
authorities were not persuaded by
few technology-enabled, platform- anecdotal descriptions of the credit as much as 10% in
based fintechs. quality of trade finance activity, 2018
Whether focusing on TTF is a and challenged industry leaders to
defensive measure, a strategic provide objective, robust data and ECA business reflects other
misalignment or partly systemic to apply solid analytics. As a result, issues in common with short-
reticence around innovation is the ICC Trade Register Project term trade finance, including the
worth further analysis. continues this annual exercise. negative impact of regulation
and compliance on underwriting
Interestingly, a large number of To accelerate the evolution of trade-
business, particularly in the
respondents noted, for example, related financing, a similar exercise
developing markets. Another issue
they broadly use the same risk is needed to educate and engage
is the perennial political demand
and credit policies for traditional business partners, senior leaders
for ECAs to provide better service
business as for SCF. This may and executive management in
to SMEs engaged in international
be appropriate, but worth banks.
commerce.
considering if it is a core challenge But success will demand banks be
for developing the SCF operating While a third of respondents
more candid about their concerns,
model and value proposition. believe ECAs adequately address
such as about internal support to
SME demand for export finance,
To shine a light on an issue trade trade financing lines of business,
others are concerned about limited
financiers often cite, this year’s even at bank CEO level.
technical skills and the profitability
survey explicitly raised the issue of The TXF-ICC survey found export of SME business, and feel pressured
the support trade finance (and SCF) finance had a difficult year, but to highlight SME support and
receives from partner areas within respondents expressed a positive activity to assuage political leaders
banks. outlook for 2018 and beyond. The and policymakers.
Practitioners often believe trade survey shows deal volume and the
The Berne Union article also
financing is poorly understood by number of deals in 2017 fell sharply:
highlights some positive macro
most non-practitioners and often 290 deals were signed for a volume
developments likely to benefit
faces more resistance than support of US$85.7 billion, compared with
international trade financing,
from credit and risk specialists, for US$133 billion on 378 deals the year
through a risk mitigation lens that
example. Except for the most global before. Nearly half of respondents
closely complements the activities

EXECUTIVE SUMMARY
of export financiers profiled in the private sector banks and ECAs. This Their achievements are many. The
TXF-ICC survey. is equally true for TTF and even EBRD and its technical assistance.
more so for SCF. IDB Invest and its activities in Latin
Berne Union members, largely but
America and the Carribean (LAC)
not exclusively public sector or
hybrid ECAs (in contrast to ICISA,
MDB support to offset de-risking and make sure
which skews more to private sector totalled over the region continues to trade. The
ITFC with its innovations in high-
members) report business was up
US$168 billion growth Islamic finance, to enable
in nearly all areas. This was also true
in the medium and long-term, after and over 100,000 more trade between Organisation
of Islamic Cooperation states (OIC)
five years of decline. Investment transactions in 10 and its fund management with a
cover is one exception, which aligns
with a 16% drop in foreign direct years focus on energy and trade finance.
investment (FDI), particularly into The scope and range of activity

Over the last decade, MDB support
developing markets. and impact of MDBs is global. The
in trade finance totalled more than
activities of the IFC make this point
The Berne Union assessment US$168 billion representing about
compellingly: the IFC facilitates
showed commercial and trade 100,000 cross-border transactions.
57,000 transactions worth US$64
flows were on the upswing. With In 2017 alone, trade finance
billion in 85 countries through its
direct linkages to the US$2.3 trillion programmes helped facilitate 11,720
GTFP program.
in new business underwritten by cross-border trade transactions
members, the organisation has valued over US$30 billion in It is in the context of the work
a major impact and comprises markets with the biggest gaps in of the MDBs that the persistent
facilities flows of more than 14% of provision. One of the newest trade and potentially very damaging
global merchandise trade. While finance programmes, launched issue of de-risking again makes
claims paid on short-term business by the African Development its appearance most strikingly
dropped 10%, total claims paid were Bank (AfDB), is helping African in industry discourse. The
again more than US$6 billion. economies conduct international regulation and compliance-driven
trade and helping these economies exit of banks from markets, FI
ECAs, ECA variations and risk
reap the benefits from trade. relationships and corporate/
insurers represented by the Berne
commercial client relationships may
Union enable global trade flows Since its inception, the AfDB
have abated somewhat, as major
directly and by supporting banks programme has supported 1650
banks imply that the process is
and boutique finance firms to trade transactions worth over
largely complete, but it remains a
leverage credit and risk capacity US$6.6 billion. More than 100
serious concern. Observations from
for underwriting more business, financial institutions in 30 African
Latin America and the Caribbean,
because of the availability of ECA countries, mostly low-income
the Pacific Region and parts of
cover. The pre-crisis debate that countries or fragile states, have
Africa for example, suggest that
ECAs are an anachronism is well put benefited from the programme,
de-risking as an unintended adverse
to rest in most jurisdictions, except including Guinea, Liberia, The
consequence of regulation is having
possibly the US. Gambia, Ethiopia, and Zimbabwe.
serious impact on the ability of
AfDB published the second edition
Multilateral development banks businesses – and countries – to
of its “Trade Finance in Africa”
(MDBs) are closely related to ECAs engage in trade-based recovery
survey in October 2017.
in their role of bringing net extra and growth.
capacity to market at times of AfDB is contributing to trade
The contributions of the multilateral
crisis and with non-commercial financing capacity, promoting
development banks, broadly and
objectives. MDBs reported on better understanding of trade
on specific issues such as de-
the state of trade financing finance by the market, whether by
risking, can only be recognised,
through the lens of development. providing technical support in gaps
applauded and further supported
MDB guarantee programs and in unmet demand or in availability
by all stakeholders. The same is
risk mitigation back-stops help of trade finance.
true for the invaluable contributions
countries and regions engage in
Whether by research, data- of ECAs of all types. Their efforts
international commerce, in part by
gathering or advocacy, as the to advance positive policy and to
boosting the technical competence
Asian Development Bank has address market failures or gaps are
of local financial institutions in
effectively done, or by conducting widely appreciated.
international banking.
analysis to assess unmet demand
This allows, for example, global for trade financing, MDBs have
banks to accept developing market made transformative contributions
bank risk, complementing the to trade-based international
financing and product solutions of development and inclusion.

Regulation and compliance A pathway charted Starting from a ‘means, motive
and opportunity’ view of criminal
Regulation and compliance,
including capital adequacy, anti-
to develop trade and illicit activity, Sohn says those
money laundering, due diligence finance as an of limited means or opportunity
are less likely to be involved
and sanctions monitoring, remains investable asset in major criminal acts. He says
at the centre of activities linked
to international trade, including class this distinction can be applied
in designing and delivering
trade-related financing and risk
The report focuses on the approaches to meet regulatory and
mitigation.
importance of attracting non-bank compliance programmes. Sohn
From banks to ECAs, from short- capital to finance international acknowledges there is an art to his
term deals to medium/long- commerce. HSBC’s Krishnan proposed approach, which he bases
term transactions, the impact Ramadurai, Chair of the ICC Trade on analysis in the OECD’s Foreign
of regulatory and compliance Register and a member of the Bribery Report that says 94% of
expectations and requirements Banking Commission’s Executive all bribes were made to executives
(both noted because an Committee and Surath Sengupta, of state-owned companies, heads
expectation and a requirement Managing Director & Global Head of state, government ministers
may not be the same) is ubiquitous. - Portfolio Management & Asset and defense officials. He adds that
The staffing and infrastructure Distribution, Trade Finance, make a regulator buy-in is critical to the
needed by banks to meet these compelling argument, with specific, success of a risk-based approach.
requirements is giving rise to the actionable recommendations. They
Also on the regulatory front,
term “compliance empires”. chart a pathway to develop trade
HSBC’s Félix Prévost and Krishnan
finance as an investable asset class.
Informed, The arguments are well timed, as
Ramadurai give an in-depth update
on Basel IV, on upcoming changes
proportionate cash-rich investors seek more
to capital adequacy requirements.
attractive and uncorrelated returns
regulation is linked to the real economy in their
They note the Basel Committee and
national regulators should consider
critically important portfolio optimisation strategies.
the impact of planned updates on
for the health and Ivan Zasarsky of Deloitte’s Asia access to trade financing for SMEs
Pacific Financial Crime Strategy and developing markets, and their
growth of the and Response Center presents impact on narrowing the trade
global economy an overview of trade finance finance gap.
regulation and outlines three
This year’s report focuses on methods to more efficiently deal Corporate culture
regulation and compliance, with with anti-money laundering,
Sir Michael Rake, Chair of ICC UK, terrorist financing and sanctions:
is at the root of
calling for informed, proportionate blockchain, data analytics, robotic success or failure
regulation, as critically important
for the health and growth of
process automation to enhance
transparency and efficiency in
in regulation and
the global economy. Noting the trade finance compliance; better compliance
argument long championed by cooperation between banks and
the ADB and the ICC Banking Professor Christopher Hodges
regulators, and shipping agents,
Commission and now part of of Oxford University and Ruth
ports and customs, along with
regular discourse that trade Steinholtz, founder of AretéWork
the many other links in the chain
finance is low-risk from a credit LLP, follow with a provocative piece
of international trade; and greater
standpoint, Sir Michael says the on ethical regulation, based on
collaboration through shared KYC
deep integration of global supply the notion that corporate culture
registries, collaborative pricing
chains is another argument for is at the root of success or failure
data, and a clearer picture of cargo
appropriate regulation, to ensure in regulation and compliance.
movements and whereabouts –
access to adequate levels of They hypothesize that the current
including ships transferring goods
liquidity in global trade and cross- approach of big penalties and
at sea.
border supply chains. investigations, as noted by the
Echoing the stance on appropriate UK FCA (Transforming Culture in
regulation, Eric Sohn of Dow Jones, Financial Services, 2018), is clearly
revisits a risk-based approach not working.
to regulation, but proposes
To wit: “…tempering the single-
refinements in definitions and
minded pursuit of shareholder
explains what this would mean in
value with achieving the objectives
practice.
of all stakeholders. It is about

EXECUTIVE SUMMARY
fairness and doing the right thing…” approach that is unfamiliar but long consistency, addressing regulatory
Will this concept resonate today, overdue. and compliance issues amid
when basic integrity and moral digitalisation and the potential
Daniel Schmand, ICC Banking
character escape leaders in the impact of Distributed Ledger
Commission Chair, makes a call to
most powerful offices in the world? Technology on aspects of trade
action for collaboration to the trade
When financial institutions and financing.
finance industry, as it sits on the
other businesses have failed to earn
and keep the trust of their clients
cusp of a digital revolution.
There are 4
and the societies they serve? BCG gives an overview of
digitalisation in trade finance in
billion pages
The authors argue that ethics and
the wider context of digital trade of documents
sustainable, successful outcomes
for business go hand-in-hand. They
after discussions with industrial circulating in
specialists. These specialists
go on to say that for business,
reported methods such as documentary trade
ethical conduct and trust-building
Robotic Process Automation
should directly translate into more The ICC Banking Commission’s
(RPA) and machine learning
supportive and engaged regulatory Working Group on Digitalisation
(ML) have matured enough to
authorities. This is what is meant by gives an update on the state
advance the digitisation of trade
Ethical Business Regulation (EBR). of trade and trade finance-
finance processes, and to support
There is no need for huge fines related digitisation, outlining the
the automation of compliance
or class actions, the authors say, working group’s key activities and
processes, such as sanctions
proposing instead that the way to initiatives. An estimated four billion
screening.
shape the behaviour of businesses pages of documents circulate in
and people is to encourage and The application of these documentary trade, the working
support those who show they are technologies to trade finance has group said, but digitalisation can
clearly and genuinely attempting to reduced human involvement to reduce the manual and error-
behave ethically. final validation and authorisation, prone processes for document and
cut processing times 60%, and compliance checking. According to
Technology and reduced the need for operational the working group, progress from
staff by 70% for entering data and technology will have the greatest
digitalisation
conducting scrutiny, BCG says. impact on GDP levels by 2035,
Technology, like regulation
accounting for an extra 20% of GDP
and compliance, is getting a BCG estimates an in Brazil and an extra 55% of GDP
lot of attention in trade-related
financing. So much so that the integrated digital in China.
inexorable if slow digitisation solution would The scope of the working group’s
of trade and trade financing is mandate covers the e-enablement
driving initiatives as fundamental save global trade of ICC rules, a review of the state
as e-enabling, the long-established banks between of the bank payment obligation
rules and guidelines of the ICC (BPO) and applying BPO lessons
Banking Commission on traditional
US$2.5 billion and learned to other technology-driven
instruments and practices in trade US$6.0 billion innovation and transformation, and
finance. to digital documentation.
on a cost base of
It is in this sort of partly speculative The working group observes that
attempt to “see around the corner”
US$12 billion to digitalisation, largely initiated by
that the survey findings and report US$16 billion, with banks and technology companies
must demonstrate its value more
contributions can help, there are
the potential to widely across the trade transaction
clear indications that technology
is moving from a quasi-peripheral increase revenue lifecycle and demonstrate clear
topic as a tool or enabler, to a by 20% value to corporate clients.
core strategic consideration. On the legal front, Angelia Chia,
Banking has inevitably had to BCG brings the power of Partner at Mayer Brown, raises the
reconsider the role of technology digitalisation into focus by issue of conflicts of laws and the
on familiar business models, showing interactions between a importance of well-crafted contract
and trade financing is reaching small number of parties in trade clauses, including for digitised
a similar inflection point. Even finance can involve 5,000 data trade finance. She emphasizes
relatively unproven technologies field interactions, perhaps 200 consistent clauses need to be
like distributed ledgers are seen billion globally, adding only 1% part of the terms and conditions
as a fundamental disruption, not in value. The report highlights in a documentary credit. She also
incremental evolution: a leap in the importance of standards and details the emerging impact of

electronic platforms on enforcing border commerce, the ICC Banking The working group asks: “How
electronic contracts, including the Commission now includes issues do we safeguard the planet, its
legal status of electronic signatures, like economic inclusion and inhabitants, and global economic
with reference to UNCITRAL sustainability in its strategic plan. growth?”
model laws and global adoption
of consistent legal standards and Voluntary In their joint contribution to this
report, Ruediger Geis who serves
interpretations.
Sustainability on the Banking Commission
Sean Edwards, Chair of the
Standards are Executive Committee, and co-
International Trade and Forfaiting Chair Harriette Resnick identify
Association (ITFA), highlights the gaining ground and some elements of a response to
potential benefits of Distributed uptake globally this big question and challenge the
Ledger Technology (DLT) and banking industry to contribute by
the opportunity in digitising Along those lines, a contribution providing sustainable trade finance
promissory notes to improve from the Geneva-based that helps safeguard the planet.
security and efficiency in International Trade Centre points to Sustainable trade finance is defined
forfaiting transactions. Noting the consumer-driven proliferation of as ‘financing that supports goods or
the existence of eIDAS (electronic Voluntary Sustainability Standards services produced in a manner that
IDentification, Authentication and (VSS), to mitigate sustainability- minimises adverse environmental
trust Services), an EU regulation related risks in global supply chains. or social impacts or risks, or that
and related standards for electronic While some VSS’s have been around promotes environmental protection
identification, and trust services since the 1960s, the standards are or social benefit.’
for electronic transactions in the gaining ground and uptake globally.
The working group notes
EU single market, Edwards points The impact of these standards
its alignment with the ICC’s
to this development as illustration can be seen in the Better Cotton
2015 Charter for Sustainable
of the desire among policymakers Initiative’s certified cotton initiative:
Development, which says business
to advance digitisation, and to volume rose to 2,086,000 metric
must take a wider view, considering
integrate cyber-security that is tons in 2015 from 35,000 metric
financial, societal and environmental
sufficiently robust to enable the tons in 2010 while the land area
factors in a triple bottom line
creation of promissory notes as increased to 2,217,000 hectares in
framework of people, profits and
legally recognised digital assets. 2015 from 65,000 hectares in 2010.
planet. The Sustainable Trade
DLT is highlighted as a technology Industry initiatives such as the Finance Working Group includes
that may be well-placed to best Sustainable Agriculture Initiative commercial banks, multilateral
align and address the wide- (SAI) launched by Nestlé, Unilever institutions and other stakeholders
ranging needs of the trade finance and Danone show how standards and organisations, and its mandate
ecosystem, with digital promissory are evolving. The SAI platform is to look at issues as far-reaching
notes capable of increasing the use is used to share knowledge and as standards and certification in
of trade finance, and the supply and best practices for developing and sustainable trade, sustainability-
availability of various forms of trade carrying out sustainable agricultural related risk assessments in trade
financing. practices at a precompetitive level. financing, and the need to educate
ITC points to the Farm Sustainability finance professionals about
The digitalisation of trade finance
Assessment developed by its sustainable trade.
depends on the pace and degree
members, suppliers, farmers and
that trade activity and interaction
is digitised. While fully digital trade
external stakeholders as a common Countries in focus:
framework of leading food and
is at least several years away, even Singapore and China
drink companies that use the SAI
by the most optimistic projections, The report concludes with
platform to source sustainably-
industry leaders must internalise the contributions from Singapore and
produced agricultural materials.
idea that the time for conservative, China, two countries with huge
incremental advances that do little The ICC Banking Commission’s impact on the state of trade and
more than marginally enhance Working Group on Sustainable trade financing.
operating models is passed. Trade Finance rounds out the
discussion by asking a question Singapore is
Sustainable trade and on the breadth and implications
developing a
of sustainability, and ICC’s
trade financing
preparedness to take on big issues holistic digital
Reflecting the evolution in its
that present huge challenges but
remit to keep pace with major
have massive opportunities for
strategy
developments in international
positive impact.
commerce and financing cross-

EXECUTIVE SUMMARY
A joint contribution by Enterprise Sinosure points out that the Belt Nations General Assembly. The
Singapore, the Monetary Authority and Road Initiative, along which combination of research, analysis
of Singapore and the National US$3 trillion in trade flowed from and advocacy work, together with
Trade Platform brings into focus 2014 to 2016, together with China’s the activities of multiple working
Singapore’s efforts to develop expansion of overseas engineering groups, rulemaking and market
a comprehensive, holistic digital projects, are the main ways China is guidance will continue to shape
strategy in support of trade and restructuring its foreign trade. the landscape of global commerce
trade financing. With trade flows but will need to do so with a
worth three times GDP, Singapore US$3 trillion in more holistic perspective and the
is a regional hub with a long history
of openness to trade. The platform
trade flowed ability to respond more and more
rapidly and collaboratively to
aims to advance connectivity and between 2014-2016 market evolution, expectation and
collaboration across the region. along the Belt and demands.
MAS and the HKMA are Road initiative

collaborating on the design and
deployment of The Global Trade As Xu notes, ecommerce is growing
Connectivity Network (GTCN): very fast in China, including
an information superhighway to cross-border ecommerce, and
be built, using distributed ledger the Chinese government has
technology (DLT), between approved the setup of 13 pilot
Singapore’s National Trade zones to further boost cross-border
Platform and the Hong Kong Trade ecommerce.
Finance Platform. The GTCN aims
to make cross-border trade and Conclusion
trade financing cheaper, safer and
The last ten years have seen
more efficient.
trade financing evolve from
The China-focused article, a highly specialised, largely
contributed by members of the underappreciated specialism in
Banking Commission’s Executive finance, to what is now widely
Committee, Vincent O’Brien and understood to be an indispensable
Jun Xu, acknowledges that the pro- enabler of global commerce,
trade and pro-globalisation stance facilitating 80% or more of annual
of President Xi Jinping, helps fill a merchandise trade flows.
leadership void at a pivotal moment
The next ten years will be more
in the global economy.
transformative, fast-paced and
The article outlines the unique disruptive than the last ten. It will
characteristics of China’s trade be important to ensure that our
finance market, such as the risk dialogue, deliberations, advocacy
perception of confirmed L/Cs, the and vision are bold enough to
inclusion of remittances in trade keep pace, or ideally even to keep
financing operations, and the what we do just ahead of the major
robust growth of supply chain forces that will shape trade, drive
finance. The article also gives economic growth and enable
an update on developments inclusion over the coming decade.
in regulation and compliance,
ecommerce, and platform-based This is a crucial
trade in China.
moment in the
The final contribution to the report,
history of ICC as
by China’s Export Credit and
Insurance Corporation, or Sinosure, it approaches 100
is also on trade and trade financing years
linked to China. As the world’s
largest exporter and the second- The ICC will soon celebrate its
largest importer in the last nine first hundred years in operation,
years, China has a huge influence from the initial vision of the
on trade and the global economy. Merchants of Peace, to the
recent achievement of Official
Observer Status at the United

MACROECONOMIC CONTEXT
FOR TRADE AND FINANCE
The global economy is picking up the pace, as the recovery enters its fourth, even
a fifth year. But trade protectionism and the risk of a trade war could really slow it
down. At the same time, trade flows have reached a turning point: they are outpacing
global GDP, after years of sluggishness. But the outlook for trade finance is mixed.
On the commodities front, speculation abounds of a new supercycle. But dig deeper,
and not all sectors are looking as hale and hardy, and markets once deemed rock
solid are showing signs of wear.
Setting the scene/Roberto Azevêdo, Global trade and supply chains/

Director-General, WTO Growing anew, but for how long?
Unmet demand for trade finance leads to a Global trade may be flowing faster, but in the
loss of economic growth and global trade, long-term, anti-trade rhetoric could have an
but the international community is stepping impact. Page 31-34
up efforts and working together to improve
trade finance. Page 23-24 Commodity trade finance/
La vie en rose? Not quite
Global Economic Outlook/ Commodities are attractive again to
Protectionism and reform complacency investors. But the effects of depressed
could imperil a sustained recovery prices in 2015 are lingering. Page 35-36
The global economic recovery is hardy by
many measures. But economists see many
risks in the not-too-distant future, and much
remains to be done to capture the jobs of the
future. Economists from the World Bank give
their own views. Page 25-00

MACROECONOMIC CONTEXT FOR TRADE AND FINANCE
Setting the scene/Roberto Azevêdo
Setting the scene/

What we need to do to boost
trade finance
By Roberto Azevêdo
Roberto Azevêdo is Director-General of the World Trade Organization.
Unmet demand for trade finance leads

to a loss of economic growth and
global trade, but the international
community is stepping up efforts
and working together to improve
trade finance.
Opening the benefits of trade to in more than 70% of the cases In all of this, the private sector has
more people is a central aim of they seek no alternative financing, a very important role to play. As
the World Trade Organization, simply because it is not available. the users of the trading system,
and in recent years we have Persistent gaps in trade finance can businesses can help to highlight
made real progress on this front. mean exclusion from the trading major challenges and focus
Achievements like the Trade system and that major trade and policymakers’ minds on developing
Facilitation Agreement, which cuts development opportunities are practical solutions that respond
trade costs and red tape around the missed. to the real needs on the ground.
globe, show that the organization Therefore I welcome the ICC’s
This is of particular concern as
can make a very positive and continued focus here. Working
MSMEs are the backbone of many
concrete impact to help more together with a range of partners, I
economies and act as major
people to trade, especially micro, have no doubt that we can reverse
employers. At the WTO’s Ministerial
small and medium-sized enterprises this worrying trend in access to
Conference in Buenos Aires in
(MSMEs). But, of course, many trade finance and build a trading
December 2017, 87 members issued
barriers remain, preventing these system that is more inclusive.
a joint statement declaring their
companies from making the most By doing so we will have taken a
intention to focus on tackling the
of the opportunities that trade significant step towards ensuring
obstacles that prevent MSMEs from
provides. A lack of access to trade that the opportunities of trade can
trading. As outlined above, there
finance is one such barrier - and it be seized by all.
is no question that access to trade
demands our attention.
finance represents a significant
Up to 80% of trade is financed by obstacle.
some form of credit, guarantee
At the WTO, we are working with a
or insurance. For many years
number of partners, including the
access to this finance was taken
International Finance Corporation,
for granted, but the financial crisis
the regional development banks
changed all that. Major global banks
and the Financial Stability Board
have pulled back from developing
to examine what can be done to
markets, thereby restricting access
improve the supply of trade finance
to trade finance. As a result,
for the smaller players and move
the gaps in trade finance have
this debate towards a solutions-
widened. Globally the gap has been
oriented approach. We also need
estimated to be now around
to ensure that this issue is fully
US$1.5 trillion - and the smallest
acknowledged in the regulatory
companies are affected the
dialogue so that the essential
most, hitting MSME traders
steps taken by regulators after
disproportionally. In fact, around
the financial crisis do not have
half of MSME requests for trade
unintended consequences for the
finance are rejected by banks, and
supply of trade finance.

80%
of trade is financed
by some form of
credit, guarantee
or insurance
global
gap in trade
finance
US$1.5 of all MSME requests for

trade finance are rejected
trillion
70%
of these cases have no
access to alternative
financing

Global economic outlook/Protectionism and reform complacency could imperil a sustained recovery
Global economic outlook/

Protectionism and reform
complacency could imperil a
sustained recovery1
By Jakob Engel and José Guilherme Reis
Jakob Engel, Economist; José Guilherme Reis, Practice Manager for Global Trade and
Regional Integration, World Bank Group.
The global economic recovery is hardy by many

measures. But economists see many risks in the not-
too-distant future, and much remains to be done to
capture the jobs of the future. Economists from the
World Bank give their own views.

1. Global economic Figure 1: The global economy
prospects A. Global GDP growth rate and for advanced and
According to the most recent emerging markets and developing economies
assessments of the world economy
8%
(IMF 2018, World Bank 2018),
the recovery that had begun in
late 2015 has continued, driven
by an upswing in investment, 6%
manufacturing activity, and trade.

The IMF’s most recent update of its
“World Economic Outlook” finds 4%
that global GDP increased by 3.7
percent in 2017, 0.1 percent faster
than projected last year and 0.5 2%
percent higher than in 2016. These
improvements have been relatively
broad-based, with most countries 0%
experiencing either increasing 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
or unchanged GDP growth, and
with Europe and Asia growing World Advanced economies EMDEs
faster than expected. Global GDP

growth forecasts for 2018 and
2019 have been revised upward
by 0.2 percentage points to 3.9
B. Share of countries with increasing/decreasing growth
percent. This has been driven in
part by increased business growth 100%
momentum, coupled with the
expected impacts of the recent US
tax cuts. This is likely to stimulate 80%
economic activity through an

investment response and in turn 60%
temporarily raise US growth
through 2020.
40%
Growth is expected to be
particularly strong in emerging
20%
and developing Asia (6.5 percent
over 2018-19) and emerging
and developing Europe (over 5 0%
percent) driven by higher forecasts 2012 2013 2014 2015 2016 2017 2018
for Poland and Turkey. In Latin
America, the ongoing economic Increasing Unchanged Decreasing
recovery is expected to continue

strengthening (1.9 percent GDP
growth in 2018; 2.6 percent in Source: World Bank (2018)
2019), boosted by a recovery in Notes: Shaded area indicates forecasts. Aggregate growth rates
calculated using constant 2010 U.S. dollar GDP weights. Data for 2017
commodity markets. A growth are estimates
pickup relative to recent years
and last year’s projections is also
expected for sub-Saharan Africa
(from 2.7 percent growth in 2017 to
3.3 percent in 2018 and 3.5 percent
in 2019). According to the World
Bank’s latest Global Economic
Prospects, the current year, 2018,
is likely to mark a turning point for
the global economy as the negative
global output gap is expected to
be closed for the first time since

the onset of the Global Financial 2. Financial stability especially in highly leveraged
Crisis in 2008. Finally, despite segments, and a transition to risk-
and credit conditions
concerns about jobless economic based supervision. In emerging and
The overall recovery in the global
growth, labour force participation developing economies, there is a
economy is also mirrored by
rates have remained relatively need to gradually rebuild buffers
improvements in the strength
constant across most high- and through countercyclical fiscal policy
and robustness of banks in many
low-income countries, although and deleveraging of the corporate
advanced economies according to
they have decreased in middle- sector. Policymakers in commodity-
the most recent Global Financial
income countries. This, the 2017 dependent emerging market and
Stability Report (GFSR; IMF 2017).
World Trade Report (WTO 2017) developing economies should
This is indicated by stronger
argues, is in part due to increased address relevant structural reforms
balance sheets due to improved
participation in the secondary and to raise productivity, increase labour
capital and liquidity buffers in
tertiary education system among force participation and increase the
light of tighter regulation and
the growing middle class. resilience of the financial system.
greater market scrutiny. Moreover,
However, while the economic further progress has been made
outlook through 2019 remains in addressing legacy issues and
3. The state of global trade
favourable, there are numerous resolving weaker banks through In 2017, world trade volumes grew
downside risks over the medium consolidation, while systemically at the fastest rate since 2012,
term. US tax cuts are likely to important institutions are moving mirroring the pickup in economic
contribute moderately to a pick- to less risky business models by growth across a wide range of
up in US growth (estimated by the changing product mix and asset both developed and developing
IMF at 1.2 percent cumulatively allocation (primarily moving away countries. This improved
through 2020) and is likely to have from shadow credit products performance is, however, fragile
favourable spillovers to trading and interbank funding). However, as the factors underlying the
partners, but the temporary nature within the context of a sustained global trade slowdown of recent
of many provisions, as well as their low-interest rate environment, the years - weak growth in global
substantial fiscal impact (estimated search for higher yields has been value chains, the lack of progress
to add $1.45 trillion to the federal intensifying and vulnerabilities in trade liberalization, and high
debt between 2018 and 2027 by are shifting to lower rated and trade policy uncertainty- remain
the Joint Committee on Taxation, less liquid assets in the nonbank present. Most regions have seen an
assuming those provisions set to sector, most notably insurance increase in trade growth in 2017,
expire are not made permanent), companies. Less than 5 percent but the largest contributions to
will require contractionary fiscal ($1.8 trillion) of the current stock global trade growth are East Asian
policy in the medium term. of global investment-grade fixed- countries and the Euro Area. The
Moreover, there are downside risks income assets yield over 4 percent, recent pickup in trade growth is
stemming from the financial sector compared with 80 percent ($15.8 primarily due to rising merchandise
which already became visible trillion) before the Global Financial trade volumes. Preliminary high-
through increased equity market Crisis. Levels of indebtedness are frequency data indicate that
volatility in early 2018 (in February also increasing with leverage in merchandise trade volumes
2018, the CBOE Volatility Index the non-financial sector in the G20 grew by 4.5 percent in the first
reached its highest point since higher than it was before the crisis. 10 months of 2017 relative to the
August 2015) and – if aggregate corresponding 10 months in 2016,
In this context, the GFSR argues driven by machinery, electronics
demand in advanced economies
that policymakers should take and semiconductors.
continues to accelerate - rising
advantage of relatively calm
core inflation figures are likely to
financial markets to address The rebound in trade growth was
lead to a normalization in monetary
medium-term vulnerabilities, especially notable, because in
policy through gradual upward
including requiring banks and recent years its responsiveness to
adjustments of interest rates. As
insurance companies to further GDP growth had waned. Real trade
will be discussed in more depth in
strengthen their balance sheets in grew on average twice as fast as
Section 3, there are also substantial
advanced economies, ensuring a real GDP from 1990 to 2007, but
downside risks from the growing
smooth normalization of monetary from 2011-2016 trade has grown
threats of increased protectionism
policy through well-communicated at about the same pace as GDP.
and even a ‘trade war’ that could
plans on unwinding their holdings of Most economists expected trade
dampen the positive impacts of a
securities and providing guidance growth to slow because of lower
recovery in global trade.
on potential changes to policy income growth, but they had
frameworks. There is also a need to presumed the relationship between
strengthen the nonbank financial trade growth and income growth
sector through tighter regulation, would remain unchanged. Since
2008, trade in services (which

accounts for roughly 20 percent Figure 2: What is happening to international trade?
of total trade) and of goods have
A. Goods and services trade volume (percent change)
followed different trajectories.
Growth in services trade has been 15%
more resilient during the Global 12.2 12.0
Financial Crisis and the global trade 10%
10.4
8.8
slowdown of recent years. Part of 7.5 7.1 6.7
this different dynamic may be due 4.8
5% 4.3
to the lower sensitivity of services 2.8 2.9 2.6 2.7
3.4
2.9 2.5
trade to short-term inventory and 0.4
0%
production cycles.
Cyclical factors are an important -5%

determinant of the improved
merchandise trade performance in -10%
2017. Three cyclical factors played -11.0
an important role in 2017: -15%
• Investment growth: Capital

0
9
10
11
12
13
14
15
16
17
0
0
0
0
0
0
0
0
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
goods represent 40 percent

of merchandise trade and
thus the rebound in global
investment growth accounted
for three-quarters of the
acceleration in trade growth.
B. Contribution to growth in goods export and
• Recovering commodity import volume, by country group, percent
prices: Prices of commodities,
particularly fuels, which 6%
experienced large declines
starting in mid-2014, bottomed 5%
out in early 2016. While
commodity prices and global 4%
trade values remained low
relative to the period before 3%
2014, they saw a recovery
throughout 2017, improving the 2%
terms of trade of commodity-
exporting countries in Eastern 1%
Europe and Central Asia,
Africa and the Middle East. 0%
2011 2012 2013 2014 2015 2016 2017* 2011 2012 2013 2014 2015 2016 2017*
• Developments in China: Chinese
Exports Imports
exports grew on the back of the
global recovery, and imports Advanced Economies Emerging Economies
jumped in the last months of
2016 responding to internal
monetary and fiscal stimulus
Source: World Bank (2018)
deployed in China since 2015,
as the economy is shifting
towards more consumption.
Indeed, China and East Asia
are significant factors in the
recent trade recovery.
Yet, two structural factors are

likely to limit world trade growth,
as compared with the period from
1995-2007, when trade soared.
Firstly, the maturation of Global
Value Chains (GVCs) has led to
a deceleration of trade growth.

Secondly, trade agreements are Reinvigorating trade, together example, factories are projected to
estimated to have accounted for with domestic policies to share have more than 400,000 industrial
around 40 percent of world trade gains from trade more widely, robots installed by 2018, the
growth in the period from 1995 to needs to be a priority. This highest number of any country in
2017. The relatively slow pace of includes removing trade barriers the world.
further liberalization, and the risk of and reducing subsidies and other
By reducing the relative importance
reversal, could weaken prospects measures that distort trade. But
of wages, robotics and “smart”
for trade. reforms to reinvigorate trade
factories can change what it
also require thinking about those
The picture on protectionism for takes for locations to compete in
workers and communities that
2017 is mixed, though US threats of global manufacturing markets.
are being negatively affected by
a “trade war” are a significant cause There is a risk that manufacturing
structural economic changes.
for concern. While the stockpile may no longer be an accessible
Even though job losses in certain
of trade-restrictive measures may pathway for low-income countries
sectors or regions have resulted
still be clogging world trade, the to develop. However, the future is
to a larger extent from technology
incidence of new trade-restrictive not all doom and gloom. Although
than from trade (see IMF/WBG/
measures (such as new or increased dramatic, media reports of massive
WTO 2017), policy packages
tariffs or quotas) for the first 10 job losses due to automation
should ensure that trade gains are
months of 2017, was the smallest may be overblown in developing
shared widely. Without the right
since 2009 (the first year of data countries. In fact, according to the
supporting polices, adjustments
collection). Moreover, the share report, the threat of automation
to structural change can bring
of merchandise trade covered by to today’s jobs may be a relatively
social and economic risks that are
trade-restrictive measures has modest two to eight percent for
often geographically concentrated
declined to about 1 percent in developing economies. The bigger
and long-lasting. This is why
2017, and is of a lesser magnitude unknown, according to the report,
governments must find better ways
than the share of merchandise is “tomorrow’s jobs.” On the one
of supporting workers through
trade affected by trade facilitating hand, there is a real risk that
job search assistance, retraining,
measures. But the number of countries will lose out on jobs that
and vocational training, policy
trade remedy initiations, such as are never created. On the other
measures such as unemployment
antidumping duties or safeguards hand, new technology could also
insurance and other social safety
(e.g. restricting imports of a lead to entirely new occupations
net measures, as well as investing
product temporarily to protect that can’t be predicted today.
in education systems. In addition,
a specific domestic industry),
housing, credit, and infrastructure Despite a rising bar for economies
has increased significantly since
policies (such as improving transit to be globally competitive,
2015, indicating that a larger
systems) could be designed so as there are opportunities ahead
share of trade may be subject to
to ease worker mobility. for developing countries. The
protectionist measures in 2018.
production of tradable goods such
The share of trade covered by trade 4. Special thematic as textiles, garments, and footwear
remedy initiations surged in 2016 continues to be labor-intensive and
focus: The Future
and remained stable in 2017 (see does not feature much automation
Constantinescu et al. 2018). Overall, of Manufacturing- yet. Ethiopia is an emerging hub
the number of trade-restrictive Led Development for this type of textile production,
measures declined by one-third, The potential impact on attracting large amounts of
driven in part by the number of industries and workers of ongoing investments from China and serving
trade remedy initiations which technological changes in the as a garment source for major
peaked in 2016, due to an increase nature and location of production European brands such as Zara.
in antidumping measures and is addressed in the recent World Commodity-based manufactures,
appears to have declined slightly Bank report Trouble in the Making: such as food processing, wood and
in 2017. The share of merchandise The Future of Manufacturing-Led paper products, and basic metals
trade covered by trade- Development (Hallward-Driemeier will also remain an entry point for
restrictive measures remained at and Nayyar, 2017). The increasing less-industrialized countries. Finally,
approximately 1 percent in 2017, adoption of industrial automation, services, including those related to
although the past two years have advanced robotics, smart factories, businesses – such as call centers
seen compositional changes, with the internet of things, and 3D and data centers – and those
the share covered by other types printing are transforming the related to manufactured products
of restrictions halved and the share manufacturing process. In some – such as design, marketing and
covered by trade remedy initiations manufacturing sectors, robots distribution – are another area
more than double relative to the and other technological advances where developing countries
2015 reporting period. are automating jobs once done can take advantage of future
exclusively by people. In China, for opportunities.

The report suggests a policy
agenda focused on three
dimensions: competitiveness,
capabilities, and connectedness.
• Competitiveness: Shift from a

focus on low wages to broader
considerations of the business
environment, the rule of law
and the use of technology to
complete financial transactions.
• Capabilities: Equip workers

with new skills, build stronger
firms, and develop the
necessary infrastructure to
adopt new technologies.
• Connectedness: Improve
logistics and lower trade
restrictions on manufactured
goods and services.
Manufacturing will remain a part

of development strategies, but its
contribution to inclusive economic
growth is likely to be lower than in
the past. In part due to the reasons
decribed above, the feasibility of
attracting production and enabling
local firms to use new technologies
is becoming more challenging.
As countries adjust to the changing
global economic environment,
policymakers need to identify
concrete ways for developing
countries to position themselves
to address the disruptions of
References and notes
technology and take advantage of 1. Written by Jakob Engel (Economist) Hallward-Driemeier, M., & Nayyar,
and Jose Guilherme Reis (Practice G. (2017). Trouble in the Making?:
globalization. Not being prepared
Manager, Global Trade and Regional The Future of Manufacturing-led
could prove to be costly. Integration), with inputs on Section Development. World Bank Publications.
3 from Cristina Constantinescu
(Economist) and Michele Ruta (Lead IMF (2017) Global Financial Stability
Economist) from the World Bank Report: Is Growth at Risk? (October
Group’s Macroeconomics, Trade 2017). Washington, DC: International
and Investment Global Practice and Monetary Fund.
on Section 4 from Mary Hallward- IMF (2018) World Economic Outlook
Driemeier (Senior Economic Update: Brighter Prospects,
Advisor) and Gaurav Nayyar (Senior Optimistic Markets, Challenges
Economist) from the World Bank Ahead. Washington, DC: International
Group’s Finance, Innovation and Monetary Fund.
Competitiveness Global Practice.
The findings, interpretations, and IMF/WBG/WTO (2017) “Making Trade
conclusions expressed in this paper an Engine of Growth for All: The Case
are entirely those of the authors and for Trade and for Policies to Facilitate
do not represent the views of the Adjustment.” For Discussion at the
World Bank, its Executive Directors, Meeting of G20 Sherpas (March 23-24,
or the countries they represent. 2017; Frankfurt, Germany).
Constantinescu, I. ; Mattoo, A.; World Bank Group (2018). Global

Mulabdic, A. & Ruta, M. 2018. Global Economic Prospects: Broad-Based
trade watch : trade developments in Upturn, but for How Long? Washington,
2017. Washington, D.C. : World Bank DC: World Bank Group.
Group.
WTO (2017). World Trade Report 2017:
Trade Technology and Jobs. Geneva:
World Trade Organization.

Global trade and supply chains/Growing anew, but for how long?
Global trade and supply chains/

Growing anew, but for how long?
By Sukand Ramachandran, Jarryd Porter, Ravi Hanspal, Teck Hsien Ho, Ankit Mathur
Sukand Ramachandran is a Partner and Managing Director of Boston Consulting Group,
Jarryd Porter is a Project Leader at BCG, Ravi Hanspal is a Project Leader at BCG, Teck
Hsien Ho is a Consultant at BCG, Ankit Mathur is Lead Knowledge Analyst at BCG.
Global trade may be flowing faster, but in the

long-term, anti-trade rhetoric could have an
impact.
Trade returns to growth The recent rise is a welcome change trade policy actions. Given this
from the overall drops from 2014 to macroeconomic uncertainty, BCG
The year 2017 marks a break in the
2016 of 7.6%. US saw flows fall 5% created three scenarios.
recent trend of falling trade flows.
from 2014 to 2016, while Asia and
The BCG Trade Finance Model The base scenario forecasts 4.0%
EU trade flows fell about 6%. Given
estimates trade grew 8.7%, well yearly growth in trade flows, and
trade volume was fairly consistent,
outpacing global GDP growth. The assumes a mature market GDP
these declines were likely driven by
Middle East and non-EU Europe growth above 3%. Chinese GDP
falling commodity prices.
regions grew fastest at 16% and growth is a factor in the BCG model,
13%.
Trade is growing given China is the world’s largest
exporter. This scenario assumes
While work remains to be done
before global trade returns to
faster than GDP Chinese GDP growth continues at
recent levels from 2017 to 2026.
pre-2015 levels, there is room for The BCG Trade Finance Model
optimism. Barring bad economic
conditions, annual growth in trade
relies on estimates of global GDP New high of US$24
growth, commodity prices, and
flows is expected to be 4.0% from macroeconomics. Short-term trillion in trade
2017 to 2026, with growth highest
in South-South corridors.
correlation with global trade seen by 2026
politics was fairly limited in 2017, as
trade seemed relatively unaffected The model also projects that
Trade peak is nigh by anti-trade rhetoric from major commodity prices, such as copper,
This returns trade to its historical trading nations. aluminium, and crude oil, will rise
2014 peak by 2019 and pushes steadily, driven by broad-based
But longer term these issues could
global trade to a new record peak increases in demand, and a stable
have greater impact, especially
of USD$24.0 trillion in 2026. and supportive policy regime.
if rhetoric is translated into

Global trade flows to grow by 4% per year
CAGR
Global trade in US$ trillion 2017-2026
30
30 6.5% Robust global trade
growth could be
24
4.0%
sustained
2.0% 20 Trade rose 8.7 percent in 2017, a

20 1.9%
return to pre-crisis levels for the
17
first time.
Reasons to be optimistic
10
Trade has not yet been affected
History by anti-trade rhetoric and
Bull actions. Trade finance revenue
Base
growth is forecasted to outpace
Bear
trade flows growth at 4.1% per
0
year.
2000 2004 2008 2012 2016 2020 2024 2026
Source: BCG trade finance model (2017)
South-south trade corridors will see higher growth
4%
2%
4%
2%
1%
4% 6%
5%
5% 4% 5%
4%
Line size depicts 4%
cross-region trade 8%
volumes for 2016
2% 6% 4%
4%
Bubble size depicts 5% 5%
intra-region trade
volumes
>=6%
4-5%
<=3% 9%
Source: BCG Trade Finance Model 2017

Global trade and supply chains/Growing anew, but for how long?
All trade corridors showed negative

growth in 2014-2016 (2)%
(3)%
(6)%
(9)%
(9)%
(27)%
(6)%
(13)%
(18)%
Line size depicts
(11)% (22)% (6)%
cross-region (16)%
trade volumes (18)% (15)%
(11)% (23)%
Bubble size depicts (13)%
(23)% (15)%
intra-region trade
volumes
>=(6)%
(6)-(10)%
(10)-(14)% (9)%
<=(14)%
Line/bubble colour represents
2014-2016 CAGR
The bull scenario forecasts a 6.5% However, trade banks in other than the base case as trade risk
annual rise in trade flows, driven markets seem to have boosted eases. This encourages the use of
by higher mature market GDP margins. BCG forecasts trade non-documentary trade.
growth and Chinese GDP growth. finance revenue over this period
The bear scenario sees revenue
It also assumes a quick recovery in rising about 4.1% a year, slightly
growth of 2.6% a year, reaching
commodity prices and more policy outpacing the growth in trade
US$43 billion by 2021. This
actions encouraging open markets. flows.
forecast assumes greater risk
The bear scenario pegs annual
growth in trade flows at 1.9%,
Trade finance in global trade prompts greater
use of documentary trade
propelled by lower mature market revenues may products, relative to open account
GDP growth and lower Chinese
slightly outpace transactions.
GDP growth. It also assumes
commodity prices remain flat, and trade growth Another trend affecting trade
finance is securitisation and the
fewer supportive trade policies and
In the base scenario, with annual evolution of secondary markets.
macroeconomic events.
growth of 4.1%, trade finance These two developments could
revenues reach US$45 billion in expand the capacity of trade banks
Trade finance 2021. The share of documentary to support trade finance by freeing
fortunes mixed trade falls slightly, offset in part up balance sheet capital.
Sentiment is mixed among trade by strong growth in trade flows in
Securitisation has historically been
banks on the prospect of improved regions where documentary trade
the preserve of major trade banks.
trade finance margins. From BCG’s is higher, such as Asia Pacific, the
However, non-bank institutions
conversations with internal and Middle East, and Eastern Europe.
have also entered the fray, with a
external trade finance experts, US$150 million securitisation last
The bull scenario sees trade
margins in Asia have been pushed July. This could build momentum
finance revenues growing 6.1%
down by intense price competition for more securitisation.
a year, hitting US$48 billion by
and by the difficulty of passing on
2021. In this scenario, the share of
higher compliance costs.
documentary trade falls further

Trade finance revenues to outpace trade flows growth
CAGR
US$ billion 2017-2026
80
66 6.1%
60 56 4.1%
49
44 42
39 42 2.6%
40 36
41
History
Bull
Base
Bear
0
2000 2012 2014 2016 2018 2020 2022 2024 2026
Securitisation and A new centre?

secondary markets Internationalisation of the Renminbi
could further support a shift in
could free up the centre of trade towards Asia.
capital for trade Renminbi use in international
transactions could focus attention
finance on trade in the Asia Pacific.
Secondary markets for trade This pivot is reflected in trade

finance assets are developing, as growth. Asia-based corridors are
seen (inter alia) by the launch of expected to grow between 4% to
a platform in Asia developed with 9% a year from 2017 to 2026. US-
support from the regulator. based corridors are expected to
grow only 2% to 5%.
Asia takes a bigger role Asia will represent 38% of global
Recent geopolitical and economic trade flows by 2020, up from 36%
developments may shift the focal in 2016, while the US share will fall
point in global trade from the US to to 8.7% in 2020 from 9.2% in 2016.
Asia. The US has made conflicting
statements on trade. But its most Asia will represent
recent trade action was to put
tariffs on steel and aluminium
38% of global trade
imports and signal the imbalance of by 2020
payments with China.
Though major governments in
On the plus side, Japan, Australia, Asia have historically preferred
Canada, and eight other countries documentary trade, future
agreed to sign the Comprehensive trade flows could be financed
and Progressive Agreement for more through Supply Chain
Trans-Pacific Partnership, from Finance (SCF) and open account
which the US withdrew. What transactions.
is more, China’s One Belt One
Road initiative is developing trade
networks in the region.

Commodity trade finance/La vie en rose? Not quite
Commodity trade finance/

La vie en rose? Not quite
by Jean Francois Lambert
Jean Francois Lambert is Founding Partner of Lambert Commodities a consultancy on the
impact of trade flows and optimizing trade finance.
Commodities are attractive again to investors.

But the effects of depressed prices in 2015 are
lingering.
Commodity prices and risk requirements per cargo followed America. Many commodity bankers
perception underpin commodity the same pattern. In the metals and around the world had to revisit and
trade finance. Prices affect mining sectors, utilisations were revalidate their guidelines. 2
financing requirements. Risk also sustained by stronger prices:
In Asia, the troubled Noble Group,
perception is more subjective but for instance, the price of cocking
a Singapore-listed trader once
also helps gauge the appetite for coal jumped 8% in 2017, while iron
seen as an emerging global trading
credit. ore and copper rose 26%. The
house just a few years ago, also
agriculture sector was much less
On the bright side, commodity sent worrying signals all year. As a
conducive to financing, as soybean
financing was sustained in 2017, result, some commodity bankers3
prices fell 2%, sugar dropped by
thanks to robust commodity prices, were kept busy restructuring and
11% and cocoa prices were down by
notably in the energy and metals selling down their working capital
30%.1
sectors. This consolidated trend and trade finance facilities.4
kicked off in 2016. Agriculture
commodities prices, in contrast,
Agriculture Another blow was dealt when
continued to be depressed, due to commodity prices Chad tried to challenge the validity
of a US$1.0 billion prepayment,
record crops and despite pressures
are still depressed granted by global trader Glencore
from an ever more challenging
with several commodity banks
climate.
Risks rack up on the country’s future crude
Overall, the Bloomberg Commodity oil production, in an attempt to
If the utilisation level gave banks
spot index rose a mere 8% in 2017, renegotiate the terms amid low
and investors some comfort, risks
after a sharp rise of 31% in 2016. But crude oil prices. 5
have had the opposite effect. A
this trend hides some big ups and
downs. To illustrate this, a cargo of
major fraud exposed banks to a The challenging
potential US$400 million loss from
250,000 metric tons of Brent crude
oil was worth slightly over US$100
US cocoa trader Transmar at the market on 2015 has
million in early 2017 compared with
end of 2016, triggering a shock weakened some
wave and shaking the belief that
US$55.0 million in January 2016. At
borrowing base facilities were players
the end of 2017, the cargo’s value
bullet-proof, especially in North
reached US$123 million. Financing

These are isolated cases, and attractive asset class: investors, for
lenders can swiftly say they are by instance, have made a billion-barrel
no means representative of overall bet on higher oil price as of March
commodity finance activities. But 2018 compared with slightly more
they highlight that if the challenging than 300 million barrels in July
market in 2015 did not immediately 2017.7
harm corporate actors in the
But major challenges loom on
commodities sector, probably
the geopolitical front that could
made more resilient after years of
jeopardise this bullish scenario.
a supercycle, they have weakened
A trade war is brewing, triggered
some players.
by President Trump’s decision to
This was bound to eventually raise tariffs 25% on US$60 billion
translate into credit risk events. The of Chinese exports. 8 There is still
The most objective
insurance industry was hit as soon a heavy atmospheric pressure in measure: commodity
as 2015 and again in 2016. Banks the geopolitical landscape due to prices
were luckier, but 2017 did not end difficult talks planned between
without several casualties.6 the US and China with North
Korea. What is more, the US
Commodity finance administration’s cancellation of the
is looking robust nuclear deal with Iran could trigger
more tensions in the Middle East,
in 2018 and provoke oil price volatility.
If the worst is avoided, a sustained

Burning bright strong economy would boost
Most of the forecasts made demand, prop up commodity
earlier this year have been prices, and increase the use of
more favourable. Barring major commodity trade finance facilities.
geopolitical events, the commodity Overall supply chain risks would be
finance market will be healthy and reduced, especially if the US dollar
buoyant in 2018 for these reasons: stays low and inflation subdued.
Two factors underpin an activity
For commodity bankers, a good
A rosy macroeconomic outlook. such as Commodity Trade
scenario all around.
The OECD estimated all 45 Finance: The absolute level
countries that make up 80% of of commodity prices and the
world GDP were in growth mode perception of risk. The former
this year, an exceptional situation. provides a very practical clue of
What is more, most economists are what will translate into financing
confident 2018 will be the first of requirements. The latter, more
the goldilocks years, meaning the subjective but equally important,
world economic growth engine, dictates the overall credit
sputtering since the end of the appetite of lenders.
great financial crisis, is roaring
again. The growth momentum is
evident in China, India and in the
developed economies. If global
growth proves as resilient as References and notes
experts suggest, many developing 1. Metal and agri trends calculated 5. See “Chad, Glencore talks to
countries should pull ahead. on average 2017 prices vs. average renegotiate $1 billion loan fail
2016 - source Cercle Cyclope again”, Julia Payne, Reuters,
Dec 2017. Agreement was
Commodities are 2. See “Impact of Transmar subsequently reached in Feb 2018
bankruptcy goes beyond soft (See “Glencore and Chad agree
back in fashion commodities”, Emiko Terazono, to restructure terms of ‘cash-for-
FT,Mar 2017
In an environment of low interest crude’ loan, David Sheppard, FT, 21
rates, with inflation low and the 3. See “Decline and fall: How trading Feb 2018),
US dollar weak, commodity giant Noble Group came unstuck”, 6. Noble, Transmar as discussed but
Jon Yeomans, Telegraph Business, also Universal Energy in Singapore,
demand will rise, pushing up prices. Feb 2018 Ruchi in India to name but a few.
Investors are already taking a more
4. See “Banks reduce loan exposure 7. Source FT, 27 February 2018.
positive view of the commodity to Noble Group”, Tessa Walsh and
sector and rediscovering it as an Claire Ruckin, Reuters, Jun 2017 8. Unspecified as of 27th Mar 2018.

FINANCE FOR TRADE
ICC’s Global Survey on Trade Finance for 2018 shows where banks stand on strategy
and operations for traditional trade finance and supply chain finance provision, digital
processes and key areas of focus to secure growth in trade finance.
As an indicator of global trade, and especially of letters of credit (L/C), the SWIFT trade
messaging system signaled trade finance traffic fell in 2017. Export finance’s fortunes
were mixed last year, but the outlook is brightening. In another important gauge of
global trade, the Berne Union, a trade association for the global credit and investment
insurance industry, reports strong growth, but the longer-term outlook is uncertain.
To help meet the US$1.5 trillion in unfilled demand for trade finance, multilateral
development banks are ambitiously scaling up funding, expanding training and
introducing new funds.
Setting the scene/ TXF-ICC Export Finance Survey/

Arancha González, Chief Executive, Profits hold up amid mixed views on
International Trade Centre the market
Governments are helping to bridge the gulf A total of 65 senior professionals share
in trade finance, especially in developing their views in the annual TXF-ICC survey
countries, evidenced by recent declarations on the export finance market on a range of
on financing for development and to expand measures. Page 75-80
trade finance support for under-served
groups, such as women. Page 39-40 Export Credit and Investment
Insurance/Strong performance, but
ICC Global Survey on Trade Finance/ political risks cast a long shadow
Where banks stand on strategy and 2017 was a good year for underwriters of
operations export credit and investment insurance, but
The 10th edition of the ICC Banking the current environment for political risks
Commission Annual Survey presents key remains delicate. Page 81-90
findings from a comprehensive survey of
leading providers of trade finance and supply Multilateral development banks/
chain finance. Qualifications aside, the survey No letup in expansion
is the most comprehensive, authoritative and A deep dive into multilateral development
regularly published survey on trade financing banks on trade finance activities, and what’s
globally, with retrospective and future- in the pipeline. Page 91-108
looking perspectives. Page 41-60
SWIFT trade traffic/The year in review

Trade messaging standards/a major
category 7 upgrade is underway
The SWIFT interbank payment system offers
a birds’ eye view of global trade activity
in the last year.It also reveals upcoming
changes in messaging standards for trade
finance. Page 61-74

FINANCE FOR TRADE
Setting the scene/Arancha González
Setting the scene/Levelling the playing

field for access to trade finance
By Arancha González
Arancha González is Executive Director of the International Trade Centre.
Governments are helping to bridge the gulf in

trade finance, especially in developing countries,
evidenced by recent declarations on financing for
development and to expand trade finance support
for under-served groups, such as women.
Trade financing is an essential tool rules render many trade finance Business, technological
to enable the trade of goods, and transactions too risky from a and financial innovation
increasingly services, allowing local compliance and reputational and small businesses
firms and value chains to sell into perspective for financial institutions, Technological advances, including
global markets - 80% of global while Basel III requirements reduce block chain, promise to reduce
merchandise annual trade flows rely the transactions’ profitability. collateral, operational and
on such financing. The impact of these regulatory compliance costs, automate
requirements has been to shrink the verification, and digitize paper-
Trade finance is traditionally far
network of correspondent banks. based information management
safer than other banking products,
Global banks report an 11% reduction for financial intermediaries. This
with a default rate of less than 1%.
of trade finance in high-risk markets would cut costs and increase the
Nevertheless, there is a significant
over 2014-15 and a 5% reduction in profitability of financing trade for
and persistent gap between the
trade finance capacity between 2011 small businesses.
demand and supply of trade
and 2015, sparking concern from the
financing, estimated by the Asian Improving access to trade
International Monetary Fund. The
Development Bank to be worth finance for women
regulatory burden for trade finance
US$1.5 trillion, mostly related to Financial institutions reject 2.5 times
should not be unduly onerous. In
micro, small, and medium-sized more applications from female
addition, there may be a role for
enterprises (MSMEs) in low-income than male entrepreneurs, despite
non-bank institutional investors to
and emerging economies. the fact that women entrepreneurs
experiment with providing smaller-
This gap leads to a loss of scale trade financing. have been consistently shown to be
international trade and reduced more financially efficient. During
economic growth. The ADB reports Improving the bankability last December’s WTO Ministerial
that a 10% increase in available of transactions Conference in Buenos Aires, over
trade financing would be associated Anecdotal evidence suggests 120 WTO members and observers
with a 1% increase in employment banks are reluctant to lend to backed a Declaration on Women
by surveyed firms. Governments SMEs in developing countries due and Trade that mentions redressing
have committed to improving the to low profitability and difficulties gender inequality in access to trade
trade financing ecosystem, such evaluating firms that lack clear financing. Work that the ITC is doing
as through the 2015 Addis Ababa financial records. Multilateral in countries such as Kenya with local
Action Agenda on Financing for development banks are expanding financial institutions shows that the
Development. their supply chain finance programs gap can be bridged through action
to allow more MSMEs from on both demand and supply.
The main reasons for the gap are developing countries to connect
due to the impact of regulation, While MSMEs are the engines
to international value chains.
requirements for collateral and of growth and job creation in
For example, the International
information management, as well as developing countries, insufficient
Finance Corporation has brought
the quality of bankable transactions. access to trade finance is keeping
suppliers, buyers, and international
them from seizing the opportunities
In the trade finance ecosystem, a banks together providing financial
presented by international markets.
few trends are emerging: guarantees to fill the gap that often
Governments, international
exists in developing countries for
organizations, and technology
Impact of regulatory requirements interim financing between suppliers
providers should work with banks,
Anti-Money Laundering (AML) and buyers in international value
regulators, and institutional investors
and Know Your Customer (KYC) chains.
to close the trade finance gap.

80%
of global
merchandise
annual trade flows
rely on trade
financing.
mostly related to micro,

small, and medium-sized
enterprises (MSMEs) in
low-income and emerging
economies.
US$1.5
trillion
gap between
demand and supply
of trade finance

FINANCE FOR TRADE
ICC Global Survey on Trade Finance/Where banks stand on strategy and operations
ICC Global Survey on Trade

Finance/Where banks stand on
strategy and operations
The 10th edition of the ICC Banking Commission
Annual Survey presents key findings from a
comprehensive survey of leading providers of trade World regions and respective
participating countries (bank
finance and supply chain finance. Qualifications headquarters)
aside, the survey is the most comprehensive,

authoritative and regularly published survey on trade
financing globally, with retrospective and future-
looking perspectives.
Data gathering and

market intelligence
Methodology
The survey took place over 12
weeks, from December 2017
to February 2018, gathering
insights from 251 respondents
North
America
in 91 countries. The survey
was administered by PwC
Research who also undertook
data collection and aggregation Canada
of results, with guidance United States
and validation from the ICC
Banking Commission staff and
the report Editorial Board. A
restructuring of the survey with
two separate sections on the Latin
strategic implications and the America
operational ones, together with
a robust follow-up process,
resulted in higher levels of fully
Argentina
completed answer sets and a Bolivia
more comprehensive view of the Brazil
market. Chile
Colombia
The profile of survey respondents Costa Rica
Dominican
ranges widely, from the world’s Republic
largest global institutions to Ecuador
small local entities with limited Honduras
Mexico
business volumes. This wide Nicaragua
spectrum of profiles reflects the Panama
Paraguay
structure of the trade financing Peru
market, particularly in traditional
trade finance (TTF), such as

documentary credits, collections, Strategic and operational
standbys and guarantees, in which outlook on trade finance
Austria
Belgium market share is concentrated This year’s survey distinguishes
Denmark among a few major providers. between strategic, forward-looking
Finland
issues shaping the business of
France The range of responses in the
Germany trade and trade financing, including
dataset and the very different
Ireland supply chain finance (SCF), and
Italy profiles of the banks participating in
Luxembourg
the more operational, transactional
the survey led us to use the median
Malta aspects. This clear separation of
Netherlands
at times to provide a more accurate
topics meant survey sections could
Norway indication of central tendency of
Portugal be targeted within organisations,
the responses, rather than the
Spain which improved the quality of
Sweden mean.
responses, and the analysis and
Switzerland Albania
United Kingdom Armenia This also affects the way data conclusions that flow from the
Belarus groups, such as regional analysis, survey section of this report.
Bulgaria
must be interpreted: as illustrative
Croatia Many of the key findings in the 2018
Czech Republic or indicative, not definitive.
Georgia
edition of the Banking Commission
Hungary Survey Report were consistent
Republic of Macedonia year on year, supported anecdotal
Romania
Russia observations in some areas, and led
Serbia to some new findings in others.
Turkey
Ukraine
Bahrain
Cyprus
Europe Iran
Kuwait
Lebanon
Oman
Palestine
Qatar
Saudi Arabia Afghanistan
UAE Australia
Bangladesh
Bhutan
China
Hong Kong
Middle
India
East Indonesia
Japan
Korea
Malaysia
Mongolia
New Zealand
Pakistan
Philippines
Singapore
Africa Sri Lanka
Thailand
Cape Verde
Ivory Coast
Egypt Asia-
Kenya Pacific
Malawi
Mauritius
Morocco
Mozambique
Nigeria
South Africa
Sudan
Tunisia
Uganda
United Republic
of Tanzania
Zambia

FINANCE FOR TRADE
For example, while 47% of World regions participation

respondents report their traditional
trade finance and supply chain
finance businesses were in the Western Europe 25%
same business unit, survey
findings show a clear focus on Asia Pacific 22%
traditional trade finance, with Central and Eastern Europe,

85% of respondent activities the Baltic States and the CIS 14%
in this area, versus 15% in SCF.

Africa 12%
This is in contrast to the market:
roughly 80% of trade takes place
Latin America 12%
on open account – better suited
to SCF solutions than traditional
Middle East 8%
mechanisms.
North America 8%
Profile of participating
banks and the trade
finance market
Number of employees involved in the selling, processing and delivery of trade
Compared to 2017, this edition finance products and solutions
includes more participation from
Latin America, with proportionately
less from the Asia-Pacific region, <50 52%
but aligns well in terms of response
rates across Europe.
51-150 23%
The survey shows 13 banks (about
8% of the survey respondents) 151-300 8%
provide about 90% of trade
finance. Asia-Pacific is still in a pole
301-400 4%
position: as an anchor for large
portions of trade financing globally,
401-500 4%
which reflects the fact that major
global supply chains and trade
corridors are anchored or linked to >501 9%
the region.
The aggregate profile of

respondents reflects how global
trade finance capability is highly Configuration of global trade finance operations
concentrated. Taking staff
complement as a proxy for market 2
share, the makeup of the market

is also reflected in the profile of
respondents.
31
As in past surveys, the majority of
participants had less than 50 staff. 47
A total of 13 banks had 500 or
more staff, while in the 2017 survey,
16 institutions reported these 19
staffing levels in both TTF and SCF.
A total of 47% reported TTF

and SCF are organised in the Supply Chain Finance only
same business unit, while 31% of Traditional trade only

institutions said trade financing was Traditional trade and SCF
restricted to TTF. Interestingly, 2% are in separate business units
reported an exclusive focus on SCF. Traditional trade and SCF
are in the same business unit

Trade finance 90% trade finance processed by 8% of respondents
processed in 2017
Over 31 million 80%
trade finance How many trade finance transactions
of the respondent total
number of trade finance
were processed by your banks
transactions and trade finance departments in 2017?
transactions processed,
comes from
over USD$9 trillion
in trade finance 31 million
Over 6%
of banks
processed in 2017 transactions

processed in total 6,432
(10 in total)
transactions
Almost a quarter of banks surveyed processed
said they provided trade finance (median value)
of at least US$10 billion each,
and 8% of banks at least US$100
billion each in 2017. The median 90%
value of trade financing provided of the respondent total
by each of the 251 respondents Globally what was the estimated values of trade finance
value (US$) of trade finance transactions, comes from
is about US$1.2 billion for 6,000 transactions processed?
transactions processed globally.
Over
8%
of banks
Trade finance provision by region
Transaction volume data showed
9 trillion (13 in total)
generated
a similar range of results across in total value 1.2 billion
institutions and concentration estimated value of
among the largest providers. trade finance transactions
(median value)
The median transaction volume
reported in the Asia-Pacific region
was about 36,000 transactions for
Number of trade finance transactions processed
the year, nearly double the level
processed in North America, and
about 10 times the median volume
>100,000 17%
reported in Africa.
North America ranks first for 10,000-99,999 26%

processing the highest value,
double that of Asia-Pacific, which
1,000-9,999 29%
ranks third in value processed.
Latin America and Central and
<1,000 28%
Eastern Europe (CEE) rank sixth
and seventh respectively in volume
and value processed.
Value of trade finance transactions processed
US$
> 100 billion 8%
10-100 billion 14%
1-10 billion 32%
100 million-1 billion 26%
10-100 million 14%
<10 million 8%

FINANCE FOR TRADE
Traditional trade finance

versus supply chain finance
The continued major focus on TTF
merits attention, as it runs counter
to market developments, and
given TTF is often referred to as a
commoditised business.
Price has driven competition in TTF

for years. Many leading institutions
consider this activity a loss leader,
to be used in pursuit of other
business or to meet overall share-
of-wallet targets.
It is interesting to note that five Trade finance volumes and values by region
banks (2% of banks responding)
said their trade financing business MEDIAN
is entirely focused on SCF. This MEDIAN ESTIMATED
may reflect the coming evolution in REGION VOLUME VALUE (US$) TOTAL VALUE (US$)
how international commerce will be Asia-Pacific 35,979 3,143,174,686 2,151,338,487,916
financed. Just as some businesses
Africa 3,571 408,928,760 145,256,084,814
and jurisdictions are leapfrogging
the technological capabilities of Central and Eastern
competitors, by circumventing Europe 519 190,436,519 293,120,517,801
legacy technology and constraints, Latin America 1,640 267,100,895 121,529,556,535

could new entrants be carving out
Middle East 5,714 1,000,000,000 506,894,228,092
differentiated value propositions
in SCF, focusing on high-growth, North America 20,000 6,314,903,500 524,211,167,315
open account flows and bypass
Western Europe 23,500 4,224,696,775 822,771,643,418
developing TTF offers altogether?
Traditional trade finance vs. SCF by region
Western Europe
89% 11%
63% 37% 87% 13%
North America Central and

Eastern Europe
90% 10% 88% 12%
Middle East Asia-Pacific

Traditional Trade Finance
Supply Chain Finance
77% 23% 88% 12%
Latin America Africa

The value of traditional trade Portfolio distribution of traditional trade finance and SCF
finance respondents provided
in 2017 was over US$4.6 trillion,
15
and US$813 billion in supply chain
finance, with their portfolios split
between about 85% in TTF and
Traditional trade finance
about 15% in SCF.
In the Americas, the proportion of
SCF-related activity is somewhat
higher, whereas 72% of banks 85
based in Africa said they preferred
commercial letters of credit
(documentary letters of credit).
Of the eight SCF techniques in the Traditional trade finance

Standard Definitions for Techniques
of Supply Chain Finance, activity
was concentrated in the four most Commercial Letters of Credit 49%
popular techniques: payables
finance, receivables discounting, Guarantees 16%
factoring and loans or advances
against receivables. Standby Letters of Credit 11%
The most notable uptake in North
America was for payables finance, Collections 24%
identified by 52% of respondents,
while factoring was the most
cited in CEE, identified by 57% of
respondents. Supply chain finance
Major trends in 2017 Payables Finance 28%
Trade finance provision

Receivables Finance 25%
is on the upswing
A total of 66% of respondents said Factoring and its variations 17%
the amount of TTF they provided in
Loan or Advance against
2017 was higher than the previous 15%
receivables
year, while 24% said they saw a
Pre-shipment finance 6%
drop in TTF-related activity. Given
the flat trendline in TTF business, it Forfaiting 4%
is noteworthy that a large majority
Loan or Advance
reported an increase. 3%
against inventory
In contrast, it is reasonable to Distributor Finance 2%

expect to see growth in SCF: 43%
of respondents said SCF business
rose, with 46% reporting no change.
Respondent banks processing the Traditional trade finance and SCF provided in 2017 compared to 2016
largest values of trade finance

reported the biggest rise in SCF TTF 66%
activity, more than 30% year-on- SCF 43%
year.
TTF 24%
SCF 11%
TTF 10%
SCF 46%
Increase Decrease No change

FINANCE FOR TRADE
The findings and data points from Increases in trade finance provision
the survey indicate the industry
is still largely shaped by the most
mature parts of the global value
proposition. The continued ability
of trade banks to extract growth 66%
43%
noted an increase
and revenue from TTF contributes in TTF
to continued focus and investment
noted an increase
in this area. By virtue of familiarity, in SCF
this may be a factor in a lower
under 10% 29% 24%
uptake in SCF by a wider range of
trade financiers. 36% 34%
10-20%
Unsurprisingly, banks reporting the

21-30% 10% 14%
most growth in SCF activity have
the most trade financing capability.
Over 30% 25% 29%
Deploying SCF requires technical
competency and the means to
access or deploy enabling platforms
and technologies.
The opportunity for TTF growth Trade lines by client type 2017 vs. 2016
will come in part from fulfilling the
huge unmet demand for SCF. The
5% 13% 42% 35% 5%
trade finance gap is estimated at Micro and SMEs
US$1.5 trillion annually. Based on 2018/2017 Survey
5% 16% 40% 32% 7%
how the queries are phrased that
underpin this number, this likely 5% 10% 38% 39% 7%
represents unmet demand for TTF Middle Market/mid-Cap
2018/2017 Survey
that excludes or undercounts unmet 6% 17% 40% 30% 7%
demand for SCF.

5% 12% 37% 37% 9%
A significant portion of respondents Multinational and large
corporate 2018/2017 Survey
reported a rise in trade credit lines,
3%
3%
18% 40% 36%
especially for mid-cap clients: 47%
noted an increase. Large corporates 6% 16% 40% 32% 6%
Financial institution
and multinationals fared nearly as 2018/2017 Survey
2%
7% 27% 39% 25%
well.
But bucking this trend were 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
financial institution (FI) clients: 22%
reported lower FI lines to support
Significantly Slightly No change Slightly Significantly
trade financing in 2017 from the decreased decreased increased increased
year before. Notably, the lack of
available credit facilities remains
a major reason for the continued
dropoff in trade financing.

The most common reasons for Trade finance transaction approval and rejection rates
rejections: Insufficient credit
lines, unacceptable risk profiles
When asked about main reasons for
rejecting trade finance transactions,
27% of banks said limitations on
credit line availability (country,
bank, or company), while for 23% Asia Pacific 79% 21%
it was unacceptable risk profile,
especially for banks based in the Middle East 82% 18%
Middle East and Latin America.
Credit capacity challenges
Africa 83% 17%
were especially cited by banks
headquartered in Western Europe. Central and
83% 17%
Eastern Europe
In the aftermath of the global
financial crisis, multinational clients Western Europe 89% 11%
(MNC) have consolidated core
bank relationships, which has put
Latin America 89% 11%
pressure on the prices and margins
of the banks they still do business
North America 93% 7%
with.
In this context, survey respondents 0% 20% 40% 60% 80% 100%

showed a notable interest in the
mid-cap client segment, including
Multinational and
the provision of greater credit large corporate 71% 29%
capacity in support of the segment.

Middle Market
The North American and Asia- 68% 32%
/mid-Cap
Pacific regions showed the most
interest, in what is called the ‘mid- Micro and SME 61% 39%
market sweet spot’ (cf. Figure: most
important clients in terms of growth 0% 20% 40% 60% 80% 100%
prospects for the next 12 months).
Approved Rejected
Most-requested client
services in 2017
A total of 34% of respondents
Clients’ most requested services
said the most valued aspect of
quality service that clients request
Favourable pricing 34%
is favourable pricing: 5% more 29%
respondents cited price versus last Cash flow and working 14%
year’s survey. capital solutions 19%
Higher credit limits 13%

Increased risk appetite and greater 12%
market coverage were highlighted Greater risk appetite and 10%
by only 10% of respondents, despite market coverage 21%
how often this is mentioned as a Increased transactional 10%
efficiency and speed 5%
gap in the value banks bring to their
Simpler and mpore efficient 8%
trading clients. compliance procedures
FX Solutions 4%
New markets
Interestingly, 83% of respondents Digitised channels to access 4%
reported exploring at least one new trade financing solutions 1%
market in the last year: of those Other 3%
1%
banks making movements, 88% in
Assistance gathering
explored new markets in the Asia- 0%
market intelligence
Pacific, 87% in Western Europe, and
82% in North America. 2018 Survey 2017 Survey

FINANCE FOR TRADE
A total of 38% said they reduced Cost of trade financing in 2017

their presence in one or more
markets: 31% said they retreated
from Central and Eastern Europe 35%
28% from Latin America, and 27%
from Africa. Interest 23 38%
Looked at in more detail, banks in 27%

all regions reported Asia-Pacific as 8
one of the top three areas where
they are exploring new markets. 4
29%
Banks headquartered in Asia-Pacific
were most likely to expand in their
Fees 4 52%
own market (93%), alongside banks
headquartered in the Middle East
9 19%
also looking to expand in Asia-
Pacific (79%).
Western Europe and the Middle Increased No change Decreased

East were the only regions where
banks reported a greater interest
in exploring a market outside their
own. Banks in Western Europe
Bank performance in terms of operational risk and error
were most likely to have explored rates in 2017 compared to 2016
Asia-Pacific (54%) versus their
own market (35%). Similarly, for
1%
respondent banks headquartered

2018 4% 3% 33% 36% 23%
in the Middle East, almost 79% said Survey
they have explored Asia-Pacific, 2017 3% 40% 32% 25%
almost twice as much as their own Survey
market (43%). 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Trade finance costs rise

At the same time, 35% of Unclear Significantly Slightly The same Marginally Significantly
respondents, especially large reduced reduced level improved improved
institutions, said interest rates
affected international trade
financing, by driving up the cost
of trade finance for clients. A total Due diligence transaction monitoring in 2017 compared to 2016
of 38% reported maintaining the
same rates as the previous year. So
it appears the rise in financing costs 31%
13%
is at least partly driven by bank- Number of
false positives 36%
specific pricing strategies, and is not
20%
entirely or maybe even mostly driven
by an increase in key benchmark
28%
rates. A total of 60% of respondents Number of
9%
trade finance
in Africa and 54% in North America 41%
red flags
reported an increase in interest rates 21%
related to trade financing.
Number of real 28%
Operational risk and error rates alerts for 11%
23% of banks noted a significant suspicious 40%
activity
improvement in operational 21%
risk and error rates, a marginal
increase from last year. Banks who
Increased Decreased No change Don’t know
have implemented technology
/Not sure
solutions were also more likely
to have experienced a significant
improvement in performance in this
regard (28%).

Due diligence transaction Type of KYC utilities used, if any
monitoring
Although the banks surveyed Utility service
3%
45% 8% 40% 49%
continue to flag the impact of provider
regulation and compliance on Industry collaboration
3%
23% 16% 28% 53%
the business of trade financing, utility
nearly 20% said they have no Jurisdictional
5%
14% 42% 53%
visibility on whether their efforts utility
linked to monitoring due diligence
and transactions have improved
results, or not. These respondents, Extremely Very Satisfied Not Extremely
somewhat worryingly, were satisfied satisfied satisfied dissatisfied
unable to say if the number of due

diligence-related alerts, red flags Our bank does not 34%
and false positives had risen, fell, or use a KYC Utility
remained the same compared with
2016.
Internal operational
34%
A similar proportion of banks implications
monitoring or reporting this
Cost considerations 28%
information saw an increase in real
alerts (28%), false positives (31%) Complex technology
26%
and red flags (28%). A large share, integration
or 40% of banks, said the number Complex legal/data
23%
of real alerts and red flags stayed privacy implications
mostly the same. Lack of appropriate

17%
KYC Utility offering
Over one-third of banks do
Other 19%
not use a KYC utility
Despite the challenges of due Don’t know 23%
diligence and KYC, 34% of
respondents said they do not use a
KYC utility, due to cost, operational
considerations, and the challenge
of complex technical integration. Priority areas of development and strategic focus in terms of growth and
Almost 70% said they work with a evolution in financing international trade
specialised service provider of KYC
72%
and due diligence, while others use Traditional trade finance 23%
5%
an industry utility.
43%
Supply Chain Finance 38%
Survey findings suggest the industry 18%
is rather satisfied with available KYC Organisational structural reform 33%

43%
towards transaction banking 24%
utility options, but there is room
32%
for improvement, as the proportion Financing new sectors
21%
47%
of ‘extremely satisfied’ is rather

Digital trade and online 29%
low. The importance of KYC and trade platforms 26%
45%
KYCC practices and processes is New alliances between 27%

43%
clear: the survey showed that 18% banks and FinTechs 30%
of trade finance rejections in 2017 Attraction of non-bank capital to 23%

29%
were directly linked to incomplete create additional trade financing 48%
or failed due diligence checks, Change in geographic 21%

36%
coverage 42%
specifically related to KYC and
Emerging technology, such 17%
KYCC requirements. as Digital Ledgers
38%
46%
Due diligence requirements are a Others (please specify)

30%
50%
20%
matter of major concern, due to
cost and resource needs. What
is more, consistency is lacking in In the next In the next In the next
12 months 1-3 years 3-5 years
regulatory requirements across
borders. These fundamental issues
must be addressed, in parallel with
developing KYC utilities.

FINANCE FOR TRADE
As industry discussion and Outlook for global trade finance growth in the year to come – Average results
and by region of participating banks
aspirations for greater inclusion
brought about by trade are
translated into greater TTF and SCF
capability, issues of due diligence 73%
Improve
and KYC will amplify.
Reaching deeper into complex

global supply chains to provide 22%
financing and risk mitigation Stay the same
solutions to SME and MSME
suppliers, especially the long tail
of supply chains, will bring due
5%
diligence and KYC requirements to Decline
the fore.
Future trends All regions 5% 22% 73%

The major themes and responses
from banks when asked to look Africa 11% 89%
ahead are in line with the topics
trade finance leaders are concerned Asia Pacific
2%
17% 81%
about today. Although there
are differences when projecting Central and
6% 35% 59%
one year and three years ahead, Eastern Europe
respondents overall did not

Latin America 7% 19% 74%
voice concerns there would be a
fundamental transformation of the
Middle East 5% 26% 68%
trade finance industry.
This is almost certainly due partly North America 6% 17% 78%

to the robustness and staying
power of products and propositions Wetern Europe 8% 25% 67%
in TTF. This has a tendency to foster
an entrenched view of the long- 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
term stability and sustainability
of the business, with operating Decline Stay the same Improve
models that evolve incrementally. It
is also no doubt because efforts to
transform the industry over the last
three decades have underestimated
the complexity and detail of Expected revenue position in the next 12 months
transactions, while over-estimating
the market’s preparedness. This
1%
is true for clients and providers

Traditional Trade 10% 13% 63% 13%
alike, in their ability to adopt new Finance (TTF)
solutions, value propositions and Supply Chain
2%
2%
16% 54% 26%

operating models for financing Finance (SCF)
international trade. 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Outlook for the year ahead

Significant Some No change Some Significant
TTF and SCF to grow decline decline growth growth
Almost three quarters of banks are
optimistic, believing global trade
finance will improve over the next
year. This is consistent across all
regions. Banks headquartered in
Africa and Asia-Pacific had the
most positive outlook.

Looking ahead, 73% of respondents Most important client segments for growth prospects in the next 12 months
expect trade financing to grow
over the next 12 months. At the
same time, 41% expect SCF to grow
36% Multinational
substantially over the next three
and large
years, which likely reflects a degree (-10%*) corporates
of conservatism, given the clear Middle 34%
trend in trade on open account and market/mid-Cap (+9%*)
the disproportionate focus of banks
on TTF.
While SCF has attracted the

attention of non-bank providers,
the degree to which banks need to
step up their engagement in SCF
for the market to achieve critical
mass bears careful monitoring.
Some 29% of respondents said SCF
business rose, 30% or more than
Micro, small & 20%
medium-sized (+2%*)
the year before, but at a pace which companies
may reflect a modest starting point. (MSMEs) 10%
Or it may be because financial (-1%*)
institutions recognize and are Financial
Institutions
responding to the urgent market
demand for SCF solutions. *change from 2017
TTF remains a priority in developing

trade financing capabilities: 72%
of respondents say it is a strategic Outlook on the trade finance gap
priority for the next 12 months,
In the next 12 months In the next 3 years
versus 43% that take the same view
of SCF. 1%
6%
Over the next year 76% of 22% 20%
28%
respondents say they expect Close
revenues to increase in TTF while
Reduce
81% expect SCF revenues to grow.
Remain 41%
Unsurprisingly, larger institutions
consistent
tend to prioritise SCF more than
Widen
smaller banks, and larger firms are
25%
more positive about the prospects 57%
for SCF-based revenue growth.
Respondents in North America
(41%) and Africa (39%) are the most
optimistic for SCF revenue growth.
Outlook on the trade finance gap The outlook is more positive for the
Priority clients
The global capacity for trade trade finance gap over three years:
Perhaps due to greater attention to
financing is expected to worsen. over 41% of respondents expect
trade on the basis of global supply
About 22% of respondents said the US$1.5 trillion in unmet demand
chains, priority by client segment is
over the next 12 months unmet to shrink. Given the attention paid
evenly split between MNC and mid-
demand will increase, and 57% to trade financing today in policy
cap client relationships, compared
said it will be largely unchanged. circles worldwide, and the broader
with the 2016 survey results. These
These responses together suggest appreciation for the linkages
two client segments now vie for
advocacy to address the trade between trade financing (TTF and
the attention of banks on a near
finance gap must be stepped up, SCF), trade conduct, trade-based
equal footing, with banks in Europe
and that global trade financing development and economic value-
paying extra attention to mid-
capacity should be re-deployed creation, this outlook is positive
market corporates.
down-market. A total of 43% of and meaningful. Especially given
banks in Africa expect the gap to efforts have been minimal to attract
widen. and engage non-bank capital in
financing international commerce.

FINANCE FOR TRADE
The outlook for the next Potential for digital channels to materially impact sales volumes
one to three years

When the horizon is extended to 2018 Survey 9% 30% 40% 15% 6%
three years, the picture changes in
several important ways: 2017 Survey
3%
6% 45% 38% 8%
Revenue growth seen 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
gaining momentum
A total of 91% of banks surveyed
expect revenue growth from SCF. Little to no Some Significant Transformational Unsure
potential potential potential potential
This suggests not only a view
that lines up with the market on
the potential of SCF, but also the
likelihood banks will take proactive
steps to develop propositions in create net new financing capacity, the expectations of regulators. The
SCF. This is consistent with the while 46% believe in focusing on capital treatment of trade finance by
survey, where 45% of respondents emerging technologies such as the Basel Committee and national
said they intend to prioritise digital distributed ledger technology, and regulators implementing the Basel
trade and the design, development 42% indicate they see a change Accords and periodic updates
and deployment of platforms to in geographic coverage. These remains a matter of discussion
facilitate trade and trade financing. responses suggest banks are and concern, with clear and direct
focusing on the familiar and are consequences for global trade
Priorities for development eventually shifting focus on forces financing capacity.
and strategic focus likely to shape not only the business
About 43% of survey participants of trade financing, but also cross- Digitisation: reality check
said they will put some degree border trade.
Digital trade and trade financing
of emphasis on assessing and
Interest is growing in attracting non- are top-of-mind among leading
developing partnerships with
bank capital to finance international practitioners. While there is promise
fintech firms. The same proportion
trade, which complements this and progress in technical capability
of respondents expect to see
trend. This suggests there is a and the degree of market readiness
changes in the structure of their
potentially large development in for significant uptake, most
transaction banking businesses in
redefining the landscape for trade observers recognise that achieving
the next three years.
financing, including the kinds of meaningful degrees of digitisation is
This is consistent with the capital available to support cross- possible in the medium-term in the
observations and expectations of border commerce. Some 43% of best case. Meanwhile, pockets of
survey respondents: 41% expect banks based in Africa, and 45% in progress can be observed in the use
the global trade finance gap to North America say attracting non- of Optical Character Recognition
narrow. Deploying SCF capabilities, bank capital to trade financing is a (OCR), and the application of
restructuring lines of business in strategic priority. Artificial Intelligence (AI) to
which trade financing typically some degree in parts of the TTF
This topic has attracted industry
resides, together with partnering transaction lifecycle.
attention on a couple of prior
with fintech and deploying
occasions. At the moment, some The importance of technology in
technology suggest trade financing
market participants think there the evolution of how international
propositions, channels and
is sufficient balance sheet and commerce is financed cannot be
capabilities will create new capacity
origination capacity in the market overstated. An indication of how
for trade financing.
through the banking sector. Others priority is evolving can be seen
believe the origination/distribution in the proliferation of proofs of
The longer term… of risk are cyclical, so capacity concept for TTF and SCF platforms,
three to five years constraints will happen again, technology-enabled delivery
Priorities for development underpinning the demand for extra, models, and Distributed Ledger
and strategic focus non-bank capital. Technology, which could have
Although a strategic focus on transformative effects.
While global capacity and appetite
TTF remains a priority over the for trade finance depends very The dichotomy between a persistent
next year, that appears to change much on the credit and risk capacity focus on familiar products, delivery
significantly in three to five years. of banks, it also depends on balance channels and business processes,
Respondents identified three focus sheet capacity and assessments and a desire to explore areas of
areas: 48% see an opportunity of reputational risk, and the risk of innovation and transformation
in attracting non-bank capital to unintentional non-compliance with suggest the potential for progress

in bringing more trade financing Maturity in using technology solutions to achieve benefits
such as reduced time and costs as well as improved precision
capacity to the market. This would associated with trade-related due diligence
complement efforts for developing
propositions under the banner of 36%
supply chain finance.
30%
Trade financing benefits from, and
pays the price for, the robustness
and long-term efficacy of its
most mature products, practices 13%
and processes. Some have been 9%
7%
in use for hundreds of years, or 3% 3%
more. For example, thanks to the
global adoption of commonly
understood guidance rules and 1 2 1 2 1 2 Don’t
know
commercial practices, in the use of Mature Developing Not currently
documentary letters of credit, the on agenda
L/C has proven effective in enabling 1 We have 1 We are 1 Technology
successfully currently solutions
trade amid the most challenging implemented struggling to implementation
political, commercial and risk solutions but implement is on our
benefits not technology agenda for the
conditions in the world. yet evidenced solutions next 1-2 years
2 We have 2 We have 2 Technology
The motivation to innovate has successfully implemented solutions
been modest at best - the downside implemented technology implementation
resulting in a solutions but is not on our
to the long-term efficacy of legacy reduction of there is room for agenda at
products. time and costs improvement this time
Technology solutions achieving

digitisation benefits
While there have been discussions
and some promising attempts
to apply technology to advance One-third of banks based in North of leading technical solutions like
the business of trade financing, America rate their adoption of and distributed ledger technology, the
especially over the last two decades capabilities through technology as use of APIs to enable connectivity,
or so, only 15% of respondents view “mature”, the highest percentage and the implications of technology
transformative potential in applying of respondents. More than half of in the physical supply chain, paper
technology to the opportunity to banks headquartered in Central and use persists in the financing of
digitise and boost trade finance Eastern Europe, 57% of the Baltic international commerce.
sales. States and the Commonwealth
About 35% of respondents
of Independent States (CIS) and
How mature is digitisation? acknowledge that removing paper
52% in Africa say implementing
In parallel, 37% of respondents in the initiation stage and the
technology solutions is not on their
said implementing some form of settlement stage of a transaction,
agenda.
technology solution or capability the two more automated parts
is not on their agenda. But the Despite these observations, it is of the transaction lifecycle,
majority of these are planning clear the size of a trade financing is incomplete. In document
to implement a solution in the business, measured by staff verification, where the impact
next one to two years. This complement or transaction value/ of using paper is most costly
reflects in part that deployments volume, directly relates to the and time consuming, 52% of
can be costly, time-consuming priority a bank places to some form respondents said no solution has
and infrequent, and in part the of technology-based investment in been implemented in this very
risk that technology upgrade trade-related financing. mature area of TTF. This is a long-
plans may not keep up with the recognised and persistent pain
business imperative driving these Paper still widely used for point in the physical movement
investments when undertaken documentary transactions and financing of trade flows. But
strategically, rather than as part Digitisation and the application of large trade finance operations units
of regular maintenance of existing technology to trade finance is still surveyed said they have made more
capabilities. top-of-mind among trade financiers progress removing some paper
and industry leaders. At the same from the TTF transaction lifecycle.
time, as the industry invests time
and effort in assessing the potential

FINANCE FOR TRADE
This brings into focus the decades- Removal of physical paper for documentary transactions
long effort to meaningfully
dematerialise the financing 51% 52% 51%
of international trade. It also
highlights how applying potentially 41%
transformative technology to
35% 35%
TTF and SCF does not eliminate
the need to address this basic
challenge.
Despite much industry discussion

about electronic documentation, 14% 14%
including electronic transport
documentation and bills of lading, 7%
only 24% of banks reported

using eB/Ls or other electronic
documentation, while the same Insurance/Advertising Document Verification Settlement/Financing
percentage reported using OCR.
These findings suggest there is To a great extent; To some extent; To no extent;
fully implemented implemented for not implemented
a large opportunity to advance for all transactions some transactions at this time
the application of technology to
the evolution of trade financing.
Although some techniques in
SCF typically involve platforms
Instruments and solutions used to digitised trade finance
and technology, there is overall
much to be done in the pursuit of
digital trade and by extension the 60%
95%
Online platforms for trade
digitisation of trade financing. finance solutions 47%
63%
33%
In the survey 60% said they use SWIFT MT798 42%
37%
some form of platform-based 25%
technology, with 73% of the larger 28%

Application Programming 58%
trade businesses, measured by staff Interface (API) 21%
25%
complement or value, more likely 24%

to use technology for managing Electronic Bills of Lading and 24%
32%
other electronic documents 23%

the business or delivering their
24%
solutions to clients. Imaging and optical character 47%
17%
recognotion technology 23%
The use of technology in many
21%
environments has shifted from Big data analytics 17%
42%
a tool to enable incremental 15%
improvement to a strategic 15%

37%
Distribution ledger technology 8%
resource that has transformed 13%
entire industries or has the potential 13%

Bank Payment Obligation (BPO) 26%
to do so. There is an opportunity 14%
9%
to leverage the confluence of
developments in trade, financing,
technology and market needs All banks
and expectations to advance Mature
a fundamental evolution in the Developing
financial supply chain, and keep Not currently

on agenda
pace with developments in the
physical supply chain.

Supply chain finance Use of traditional trade finance vs supply chain finance by
new clients on-boarded during 2017
SCF is a nascent area of trade
financing, a holistic, programmatic
proposition even though SCF
techniques, such as factoring and
forfaiting, are as mature as the most
familiar elements of TTF. 19%
Traditional Trade
The 2018 edition of the annual Finance only
ICC Banking Commission Survey
Supply Chain
respondents collectively had a TTF Finance only
21% 61%
portfolio of US$4.6 trillion and a SCF
Both
portfolio of about US$813 billion.
Given the number of respondents

and the incomplete responses from
some, these numbers are not a 14%
comprehensive view of the global
... of existing clients exhibited a shift
market for trade financing, but from Traditional trade finance solutions
enough to identify major market to Supply chain finance solutions
trends, analyse key developments,
and consider the strategic and
operational implications of the
Type of supply chain finance platforms used
survey’s findings for stakeholders of
the global ecosystem of international
56%
commerce and trade-related
financing and risk mitigation.
The ICC Banking Commission

together with many industry
associations, spent two years
developing the “Standard Definitions
27%
for Techniques of Supply Chain
Finance” 1. First published in 2016, it
17%
is now focused on market adoption.
KYC challenges have long been at
the crux of a specific SCF technique, 7%
which the standard definitions refer 1%
to as “payables finance”.
Developed a Outsourced Hybrid No platform Other
Supply chain finance operations proprietary (externalized Platform at all
More than half of all banks, or 56%, system (i.e. an function) to
internalized FinTechs/
that offer SCF have developed function) network
a proprietary system for their Platform/
operations. This SCF platform has another bank
been developed by the majority

of banks classified as mature in
implementing technology solutions
and almost two thirds or 64% of
banks classified in the developing
group.
Banks that do not have implementing

technology solutions on their agenda References and notes
are least likely to have developed 1. http://
this type of system (38%) and about supplychainfinanceforum.org/
ICC-Standard-Definitions-
one third (34%) are outsourcing to
for-Techniques-of-Supply-
another bank. Chain-Finance-Global-SCF-
Forum-2016.pdf” “Standard
Definitions for Techniques of

FINANCE FOR TRADE
In the survey 60% of banks do Use of different credit and/or operational risk policies for supply chain finance
than those used for traditional trade finance or working capital finance
not use different credit and/or
operational risk policies for SCF
than for TTF or working capital
finance. Only half of the remaining
“Different program
banks can confirm they use
parameter and
different policies. Respondents
collection process.”
who indicated
‘yes’ – selection
Supply chain finance due diligence “Focus and rational is to of verbatim
manage, evaluate and mitigate
Challenges around KYCC have servicer risk and give guidance
comments.
appreciably slowed and even for proper asset due diligence.”
hindered the ability of banks to
“There’s no strong “SCF is typically applied to
onboard suppliers to payables
rationale, just legacy. open account trade therefore
finance programmes, especially Teams started as documentation and handling
when suppliers are based in separate, and of the transaction are not the
separate policies same as the traditional trade
countries where basic credit were developed.” that is subject to UCP.”
adjudication is hampered by the
lack of credit reports and other “Under Supply Chain products “Owing to comfort
we are only undertaking provided by Anchor/spoke
basic data about these trading forfaiting transactions for which supply chain linkages. Also,
partners. separate guidelines are available our OR frameworks are
that are applicable to FI risk only maintained on the process
Questions remain about the whereas other forms of credit and not product level.”
have a separate policy covering
degree of KYCC required by corporate/non-bank risk.”
various regulatory authorities and
inconsistencies are rife across
20% 21%
jurisdictions. Failure to complete
adequate KYC/KYCC is cited
as the reason for a drop in the
provision of trade financing by 18%
of respondents, a large number
when considering the annual trade
finance gap is US$1.5 trillion.
60%
Due diligence, including KYC
and KYCC requirements, are still
Yes
challenging for TTF and SCF
No
providers. In the survey 40% of
respondents identify KYC and Don’t know
KYCC requirements as persistent
challenges in SCF delivery. This has
long been an issue for successfully
deploying payables finance
programmes, as they require due could enable more efficient and expectations, including an absence
diligence on suppliers invited to effective KYC and due diligence, of clarity, which is at times behind
participate. including more cost-effective excessive industry measures. They
solutions to address due diligence are also more generally concerned
A total of 32% of banks with requirements. about the global financial impact
proprietary systems report and resource deployment to
challenges due to the absence meet regulatory and compliance
of common standards for
Regulation and compliance’s
requirements.
exchanging data between the brake on growth
various platforms in the market. Nearly 90% of respondents The 2018 edition of this report,
The absence of interoperability highlighted regulatory and however, places one issue in relief:
across technologies, including compliance requirements as major banks expressed major concerns
between major industry platforms, obstacles to growth, including about sanctions and measures
is considered a major systemic those linked to international to counter the financing of
issue. The importance of creating sanctions and terrorism financing. terrorism (CFT). A total of 56% of
common standards, or at minimum While practitioners as a group respondents had serious concerns
building technical bridges between fully recognise the imperative of on the impact of sanctions and
many digital islands is a focus regulation and compliance, they are CFT could have on their ability to
area: many banks believe fintech likely concerned about regulatory provide adequate levels of trade
financing in support of cross-border

trade. Banks based in Western Major challenges in delivering supply chain finance solutions
Europe were very concerned about
regulatory and compliance issues;
71% of respondents raised this KYC and KYCC 40%
subject, while 66% based in Asia-
Lack of supply chain
Pacific and 62% based in Africa finance platform
39%
voiced similar concerns. Lack of common standards to
enable exchange of data between 34%
The industry recognizes the need different technology platforms
for and the imperatives for robust Internal policies 31%

regulatory regimes and appreciates
the unique role that international Competition from non-banks 28%
banks can play helping police and Lack of clarity in accounting
intelligence agencies investigating and regulatory treatment of 27%
SCF solutions
and successfully combatting illicit
Lack of support from
activity. anchor party
11%
The concerns arise from the huge Other 11%

increase in resources banks must
invest to ensure compliance with No major challenges 11%
a wide range of often inconsistent
regulatory requirements and
expectations across jurisdictions. Obstacles to growth and concerns
Perhaps more challenging, the
interpretation of regulatory
1%
Regulation and compliance 93% 6%
requirements can vary between
senior policymakers and examiners Counter-terrorism and international
0%
87% 13%
sanctions regulation and compliance
assessing compliance. The effect
Competition and disruption from
2%
is that banks apply large internal FinTechs and Non-Banks
66% 32%
resources and incur cost to ensure Increasing protectionist and
2%
65% 33%
compliance with standards that trade-restrictive measures
are at times unintended and
2%
Volatile commodity markets 64% 34%
unnecessarily stringent.
2%
Capital constraints 64% 34%
Understanding Reduction in pool of senior
3%
63% 34%
technical specialists
trade finance
Legacy technologies 54% 38% 8%
Trade finance education
Responses on education Shifting trade flows and corridors
4%
48% 48%
programmes centered around

0% 20% 40% 60% 80% 100%
advocacy, education and the
need to collect metrics more Somewhat concerned/Extremely concerned
representative of global industry Not at all concerned/Not very concerned
dialogue. While 74% of respondents
Not applicable
said they use in-house, face-to-
face training, only 40% had access
to external experts, and only 26% Internal level of support for trade financing from other stakeholders
reported using online programmes
developed by external third parties.
Relationship Management
1%
19% 45% 35%

The start of this conversation is
important, and fitting to add to the Executive Management 5% 24% 36% 35%
10th anniversary of this publication.
Asking about levels of internal Compliance 4% 27% 44% 25%
support could motivate some
senior bank executives to conduct Risk and Credit 4% 28% 46% 22%
candid self-assessment and prompt
business line executives to consider 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
opportunities for boosting the
efficacy of internal advocacy in
support of trade financing. No support Some support Considerable support High level of
provided provided provided support provided

FINANCE FOR TRADE
In-house support Trade finance education in banks

The opportunities and challenges
for financing international
commerce by banks of all sizes is
most commonly understood and
described against a backdrop
74% 40%
of low awareness of trade
finance outside a core group of
practitioners.
This is true even in the most

internationally-oriented financial
institutions, and certainly in
international trade. Anecdotal
reality reported among industry In-house face-to-face Face-to-face training
training delivered by a
stakeholders shows trade financiers third-party provider
routinely say senior bank executives
rarely understand the nature and
value of trade financing to the
institution or a bank’s clients. They
say front-line relationship managers
48% 26%
are too often not literate on basic
trade and trade finance, and
incentives to boost trade finance
sales are often lacking.
In contrast, respondents to this

year’s survey report strong
support for trade finance among
relationship managers (80%) and In-house online Online training
training delivered by a
almost equally among executive third-party provider
management (71%). Credit, risk and
compliance functions are described
by almost 70% of respondents as
equally strong supporters of trade Raising the query around levels This publication is rich in content
financing. of internal support will perhaps and analysis. Reviewed critically,
There is perhaps some contrast motivate some candid self- it can inform and guide practical
between these assessments, and assessment among senior bank commercial decisions, and provide
the main recommendations on executives and may prompt line an authoritative basis to develop
how to best support trade finance. of business executives to consider critically important messaging
Almost a third of respondents see opportunities for enhancing the and advocacy on trade and trade
the need to better articulate and efficacy of internal advocacy efforts financing.
champion the favourable credit in support of trade financing.
risk and capital characteristics of
the business, while 25% say it is Survey results for
important to boost education and information and
awareness about trade finance
decision-making
inside their institution. A total of
The survey findings, together with
19% said gathering objective data
the contributions of world-class
to quantify the value of trade
experts in a range of disciplines,
financing to a bank was important
provide ample material for
to get sufficient internal support for
thoughtful reflection, strategic
TTF and SCF.
planning and practical, tactical
action to keep global trade flowing.
Trade is crucial for economic

growth, greater inclusion and
prosperity. Adequate trade
financing is the underpinning to
keep trade growing and flowing.

FINANCE FOR TRADE
SWIFT trade traffic/

The year in review
By Huny Garg
Huny Garg is Head of Trade and Supply Chain at SWIFT.
The SWIFT interbank payment system offers a birds’

eye view of global trade activity in the last year.
It also reveals upcoming changes in messaging
standards for trade finance.
While SWIFT trade finance traffic represents only a sliver of global

trade, it is a good barometer of trends for letter of credit (L/C) use,
since about 90% of L/C transactions go via SWIFT.
Highlights in 2017
• SWIFT trade finance volume fell 2.35% in 2017 1 from the year
before, in large part due to a 1.56% drop in category 7 and a
5.30% drop in category 42. The decline was less pronounced
than last year when trade finance volume declined 4.72%.
• Asia-Pacific continued to register much higher volumes of MT 7003,

garnering a 73.8% share for imports and a 77.2% share for exports. SWIFT terms explained
• Countries using SWIFT L/C4s the most for imports were: Traffic - live messages sent over
Bangladesh, South Korea, China, India and Pakistan. SWIFT
• Countries using SWIFT L/Cs the most for exports were: Category 4 messages - flows for
China, India, Singapore and Japan. documentary collections, except
the three least used cash letter
• Imports rose sharpest in Iran, up 23.74%, and exports
messages
rose fastest in the United Kingdom, up 5.55%.
Category 7 messages - flows for
• Imports fell the most steeply in Egypt, down 23.43%, and
commercial and standby L/Cs
exports fell sharpest from Saudi Arabia, down 18.57%.
and guarantees
• The average value of an L/C (MT 700 only converted to
MT 700s - L/Cs or issue of a
US$) rose to US$537k last year from US$463k in 2016.
documentary credit

Trade finance traffic SWIFT global traffic
continues its slide
SWIFT trade finance volumes Number of messages
(million) 2017
in 2017 were down 2.35%, but growth
fell less sharply than last year’s 50 compared
45 to 2016
drop of 4.72%, pushed down
by the decline in category 40
7 documentary credits and 35 -2.35%

guarantees by 1.56%, and 30
-1.56%
a 5.30% fall in category 4 25
20
documentary collections.
15
The share of total finance traffic 10
for category 4 fell to 20.46% in -5.30%
5
2017 from 24.56% in 2011. 0
2011 2012 2013 2014 2015 2016 2017
Total Category 7 Category 4
MT volume
L/C volume – fourth
year of slump (million)
The volume of L/Cs on SWIFT 48
fell for the fourth straight year, 3.30% -2.50%
47
off 2.69%, the lowest since 2011. 0.13%
-3.76%
46
45
44 -3.81%
43 -2.69%
42
41
40
2011 2012 2013 2014 2015 2016 2017
Regional analysis Import traffic
Importing with L/Cs5

Asia-Pacific continued to 2.1
2
register the largest volume
for imports sent using MT 4 References and notes
4.6
700s, making up 73.8%
1. Flows for commercial and
of world traffic in 2017, 6.4
standby letters of credit and
followed by the Europe - 7.2 guarantees. MT 700 is in this
Eurozone (7.2%) and the category.
Middle East (6.4%). 2. Flows for documentary
73.8 collections, excluding the
three least commonly used
“cash letter” messages.
3. Equivalent to Letter of Credit

(L/C). A letter from a bank
Asia-Pacific guaranteeing that a buyer’s
Europe – Eurozone payment to a seller will be
received on time and with
Middle East
correct amount.
Africa
4. Equivalent to MT 700.
Europe – Non Eurozone
5. Data includes domestic and
North America
international traffic.
Central & Latin America

FINANCE FOR TRADE
SWIFT trade finance traffic MT 700s sent

fell in most regions in 2017 Million
compared with 2016. The
Middle East had the most rapid 900,000
decline, down 7.53%, followed
850,000
by Central and Latin America,
which was down 6.97%. 800,000
750,000
700,000
150,000
100,000
50,000
Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017
Asia-Pacific (-1.82%) North America (-6.35%)

Europe – Eurozone Middle East (-7.53%)
(-4.5%) Central and
Europe – Latin America (-6.97%)
Non Eurozone (+0.01%) Africa (-5.11%)
Top importers Top 10 importers

Looking at the cross-border 500,000
(excluding domestic flows)
volume of MT 700, the ones
importing the most using L/ 400,000
Cs were:
300,000
200,000
100,000
0
h
ea
na
an
an
am
an
nd
di
es
on
or
hi
st
iw
ila
In
tn
ad
Ja
K
C
ki
K
Ta
a
ie
Pa
g
gl
Th
h
V
on
ut
an
H
So
B
2011 2012 2013 2014 2015 2016 2017
RANKING IMPORTERS GROWTH 2017 FROM 2016

1 Bangladesh 3.29%
2 South Korea -4.41%
3 China -5.11%
4 India -4.24%
5 Pakistan 0.74%
6 Hong Kong -10.98%
7 Taiwan -4.40%
8 Vietnam -5.51%
9 Japan -7.72%
10 Thailand -7.72%
* based on 2017 L/C volumes

Looking at annual volume Fastest-growing importers
over 10,000 MT 700s sent 25%
internationally, the countries with
the highest year-on-year growth
in this category in 2017 were: 20%
15%
10%
5%
0%
n
ia
al
ey
nd
an
ly
k
si
Ira
es
er
ep
Ita
an
rk
st
la
ne
ad
ig
ki
er
Tu
iL
do
N
Pa
gl
itz
Sr
In
an
Sw
B
With a yearly volume higher Importers with the sharpest declines
than 10,000 MT 700s sent 0%
internationally as a gauge,
those showing the largest
declines in imports are: -5%
-10%
-15%
-20%
-25%
t
ia
ia
el
an
s
yp
te
nd
ic
bi
on
op
er
ra
rd
fr
ira
ra
Eg
rla
lg
Is
K
hi
Jo
iA
Em
A
he
Et
on
ud
ut
et
b
H
So
Sa
N
ra
A
d
te
Regional analysis Export traffic

ni
U
Exports using L/Cs6 0.9 0.8

Asia-Pacific continued to 4.3
register much higher volume 3.9
4.6
for received (exports) MT 700s,
accounting for 77.2% of world 8.5
traffic in 2017, followed by the
Europe - Eurozone (8.5%) and
Europe - Non Eurozone (4.6%).
77.2
Asia-Pacific Middle East

Europe – Eurozone Central & Latin America
Europe – Non Eurozone Africa
North America
6. Data includes domestic and

international traffic.

FINANCE FOR TRADE
Export traffic was down MT 700s received

across the board in 2017
Million
compared with the previous
year. The region that showed 950,000
the steepest drop was the
Europe - Eurozone, where 900,000
export traffic trailed off
850,000
6.92%, followed by North
America, where traffic 800,000
contracted 6.54% and Africa,
where traffic fell 5.80%. 150,000
100,000
50,000
Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
2011 2011 2012 2012 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017
Asia-Pacific (-1.82%) North America (-6.54%)

Europe – Eurozone Middle East (-7.53%)
(-6.92%) Central and
Europe – Latin America (-6.97%)
Non Eurozone (+0.01%) Africa (-5.80%)
Top exporters Top 10 exporters

Looking at the cross border
(excluding domestic flows) 1,000,000
volume of MT 700s received,
those exported the most
800,000
using L/Cs were:
600,000
400,000
200,000
0
na
ia
an
ea
an
es
d
or
an
on
n
d
at
or
hi
iw
la
In
ap
m
Ja
K
C
St
ai
K
Ta
er
ng
g
Th
h
d
on
G
ut
te
Si
H
So
ni
U
2011 2012 2013 2014 2015 2016 2017
RANKING EXPORTERS GROWTH 2017 FROM 2016

1 China -3.58%
2 Hong Kong -10.61%
3 India 3.10%
4 Singapore 0.15%
5 Japan -0.13%
6 South Korea -4.85%
7 Taiwan -7.70%
8 US -5.59%
9 Germany -11.49%
10 Thailand -2.04%
* based on 2017 L/C volumes

Using a yearly volume of more Fastest-growing exporters in 2017
than 10,000 MT 700s received
internationally as a gauge7, the 25%
countries with the fastest growth
in 2017 compared to 2016 are: 20%
15%
10%
5%
0%
om
am
ey
re
ia
ic
di
tr
o
rk
fr
In
tn
gd
ap
us
Tu
A
ie
A
ng
in
h
V
K
ut
Si
d
So
te
ni
U
Those registering the largest 10 exporters with sharpest declines in 2017

drop in annual volumes in
2017 , in the category 0%
over 10,000 MT 700s sent
internationally, are: -5%
-10%
-15%
-20%
a
ce
an
ia
ly
zi
nd
bi
ad
an
on
tr
Ita
ra
an
iw
ra
us
rla
m
an
Ta
Fr
iA
er
A
g
C
he
on
G
ud
et
H
Sa
L/C value rises sharply L/C volume by value buckets US$

The average value of a letter of
credit (MT 700 only converted
12 10
to US dollars) rose 15.81% in 2017
for an average value of US$537k
from US$463k the year before.
78
0 to <10k
10k to <500k
500k to greater
7. There are only 7 top exporters

with a yearly volume higher
than 10,000 MT 700s received
internationally.

FINANCE FOR TRADE
The US dollar continued as the Currency for L/C by volume 2017

most often used currency by far
for SWIFT trade finance: 83.02% 0.8 4
of the MT 700s (volume of L/Cs 0.6
2.7
issued equals the number of MT
700). The euro was the second 8.8 US$
most often used currency for
EUR
8.94% of these transactions.
CNY
JPY
AED
83.0 Others
The same was also true of the Weight of L/Cs in value (converted to US$) by currency, 2017
total value converted to US$
of L/Cs issued via SWIFT. The 1.8 3
US dollar was used in 84.81% 0.5
2.5
of these transactions, while the
euro represented 7.21% and 7.2 US$
Chinese yuan or renminbi (CNY
EUR
or RMB) 2.53%.
CNY
JPY
AED
84.8 Others
Asia-Pacific Import volume by region

Asia-Pacific issued the
most L/Cs, more than 3
million MT 700s, much North America 83,207
more than any other
Central and
region. Latin America 87,726
Europe –
Non Eurozone 170,284
Africa 195,018
Middle East 270,598
Europe – Eurozone 306,722
Asia-Pacific 3,133,630
0
0
0
0
0
,0
,0
,0
,0
0
0
0
0
1,0
0
2,
3,
4,

Asia-Pacific the lead Export volume by region
exporter with L/Cs
Asia-Pacific received
the most L/Cs, around Africa 32,644
3 million MT 700s,
Central and
much more than any Latin America 38,663
other region. But the
average value of an North America 164,133
L/C in Asia-Pacific was
lowest at US$413k for Middle East 180,574
exports. Europe –
Non Eurozone 194,277
Europe – Eurozone 360,018
0
0
0
0
0
0
0
0
,0
,0
,0
,0
0
0
0
0
0
0
0
0
0
0
0
1,0
4,
3,
2,
Average value of export by region (converted to US$)
Africa 413,125
Central and
664,212
Latin America
North America 757,508
Middle East 811,709
Europe – Non Eurozone 1,015,096
Europe – Eurozone 1,478,033
0
0
0
0
0
,0
,0
,0
,0
,0
,0
,0
,0
0
0
20
40
60
80
0
1,0
1,2
1,4
1,6

FINANCE FOR TRADE
Confirmed L/Cs rose a touch Confirmed export volume 2017 vs 2016

The share of confirmed
L/Cs rose slightly, up 0.06% in
7.2
2017 from the previous year. 4
Africa continued to receive the
7.4
highest percent of confirmed 3.8
L/Cs, and Asia-Pacific the
lowest. Without
2017 2016 May add
Confirm
88.8
88.8
% confirmed exports by region 2017
Africa 39% 6% 55%

3%
3%
Asia-Pacific 94%
Central &
15% 6% 79%
Latin America
Europe
29% 7% 64%
– Eurozone
Europe
– Non Eurozone 26% 11% 63%
Middle East 14% 11% 75%
North America 12% 6% 82%
All Regions 7% 4% 89%
0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% 0.7% 0.8% 0.9% 1.0%
Confirm May add Without
Most regions prefer Export volume by credit rule combination

negotiation L/Cs
Credit rule is an indication of
10.6 7
how credit is made available
0.2
by identifying the bank, or 9
0.2
11 6.8
place for presentation. 8.8
Acceptance
In the majority of cases, L/Cs
are negotiated. The share was Def Payment
stable at 73% in 2017 with 2017 2016 Mix Payment

the previous year. Regionally, Negotiation
negotiation credit accounted Payment
for 80.31% of trade in North
73.2
America and 77.64% in Asia-
Pacific. All other regions
73.2
except Africa mostly used
negotiation L/Cs.

% distribution of exports by credit rule combination
3%
1%
Africa 38% 41% 17%
Asia-Pacific 77% 8% 7% 8%
Central &
3%
1%
59% 18% 19%
Latin America
Europe
4%
1%
55% 21% 19%
– Eurozone
Europe
3%
1%
– Non Eurozone 49% 27% 20%
1%
Middle East 58% 16% 16% 9%
North America
4%
4%
80% 12%
All Regions 73% 11% 9% 7%
0.0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% 0.7% 0.8% 0.9% 1.0%
Negotiation Payment Def Payment Acceptance Mix Payment
L/C credit averages 60 days % distribution L/Cs by credit length 2017

A total of 38.65% of L/Cs
had credit extended from 31 2
to 60 days, and 34.41% from
61 to 90 days. 11
14
0 to 30 days
31 to 60 days
61 to 90 days
39 91 to 180 days
34
>180 days
Region-by-region export volume by credit length 2017

4%
Africa 6% 33% 35% 22%
Asia-Pacific
1%
12% 41% 34% 12%
Central &
8% 39% 31% 17% 5%
Latin America
Europe
5% 29% 36% 23% 7%
– Eurozone
Europe
7% 31% 36% 21% 5%
– Non Eurozone
Middle East 6% 28% 42% 20% 4%
North America 7% 35% 37% 16% 5%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
0-30 days 31-60 days 61-90 days 91-180 days >180 days

FINANCE FOR TRADE
Trade messaging standards/A major category 7 upgrade is underway
Trade messaging standards/

A major category 7 upgrade is
underway
By Robert Marchal
Robert Marchal is a Standards/Business Analyst at SWIFT.
Because many change requests had been

postponed in the past several years, SWIFT’s
working group on trade finance maintenance
(TFMWG) recognized category 7 interbank MTs
(letters of credit, guarantees and standbys)
needed a major revision, and messages upgraded
to boost automation.
The working group will achieve and can be downloaded from the An extra testing facility,
three aims in this project: standards release section at swift. integrated as a readiness portal in
com. MyStandards, has been available
• a
nalyse change requests in the
since 2016.
past decade For SR 2019 (guarantees
and standby L/C), advance The new versions of MTs can be
• b
oost straight-through-
documentation was published in tested, with these limitations:
processing
April 2017 and re-published with
• not all NVR (Network Validated
• fill gaps in transaction flows corrections in February 2018.
Rules) implemented
Please note the SWIFT community
The work of the group will result
can still submit change requests • not for volume testing
in SR (Standards Release) 2018
(CR) on this release no later than
for letters of credit (MT 700-759)
the end of May 2018.
and SR 2019 for guarantees and
standby L/Cs (MT 760-789).
Testing
Documentation In line with the annual release
timeline, testing facilities of the SR
According to the annual
for the vendor test bed (VTB) will
documentation cycle, the standards
be available in May and SR testing
release guide for SR 2018 (L/C) was
and training (T&T) in July.
published on December 22, 2017

Timeline
Annual deadline for CR
Advance Readiness Portal

documentation My Standards
2016
Feb
Advance SRG
documentation documentation
2017
Documentation
April Dec
(Vendor Test and Testing facility
test bed) training
Advance UHB SRG
documentation documentation documentation
Milestone
2018 VTB T&T Live
L/C
Feb May July 18 Nov Dec
UHB
VTB T&T documentation Live
2019
May July Nov
Guarantees/standbys
Impact of changes • new fields in MT 700 and related SR 2019 and MT 798 trade guideline
special payment conditions revisions, to provide an overview of
The revamp of Category 7 is the
for the beneficiary, special the changes. More information will
biggest upgrade ever and includes
payment conditions for the be posted on swift.com
nine new messages:
receiving bank, requested
A new version of the trade
Documentary credits confirmation party
implementation guidelines in MT
• MT 708 amendment to a • extended character set 798, for communication between
documentary credit in long text fields banks and corporate, is required
• MT 744 notice of non- to align with the new interbank
Major changes in SR 2019 include:
conforming reimbursement claim messages. It was published in July
• MT 760 becomes a highly 2017, and includes enhancements
Guarantees and standby L/Cs structured message instead and new flows, such as:
• MT 761 Issue of a demand of free format text
• drafting/negotiation flow
guarantee/ standby L/C
• guarantee/standby L/C issued before official application to the
• MT 765 guarantee/ can be specified, as well as the bank to issue the instrument
standby L/C demand local guarantee/standby L/C to
• flow for a corporate to
be issued in case of counter and
• MT 775 amendment to a demand respond to an advice of
local guarantee/standby L/C
guarantee/standby L/C discrepant presentation
• enhanced MT 767 amendment
• MT 785 guarantee/standby L/C • notification of transfer of
and to receive a continuation
non-extension notification documentary credit
message MT 775
• MT 786 guarantee/ • advice of acceptance
• extended character
standby demand refusal or refusal of guarantee/
for long text fields
standby L/C amendment
• MT 787 guarantee/standby
L/C amendment response How SWIFT can help • response to guarantee/
standby L/C amendment
• MT 759 ancillary trade Application vendors have worked
structured message on upgrades to their trade • notification of non-extension
applications with a mandatory of guarantee/standby L/C
Other major changes to SR2018
deadline of November 2018 and
were made: • demand refusal under
then November 2019
guarantee/standby L/C
• MT 707 restructured as a
It is critical the community starts
mirror image of the MT 700 • some cancellation and
preparing for these changes now.
ancillary flows
• MT 708 becomes a continuation
Before the end of June 2018, SWIFT
message for MT 707
is organising e-webinar sessions on

FINANCE FOR TRADE
SWIFT/Watch Traffic
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financial message volumes, message costs and
billing data sent and received over SWIFT.
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FINANCE FOR TRADE
TXF-ICC Export Finance Survey/Profits hold up amid mixed views on the market
TXF-ICC Export Finance Survey/

Profits hold up amid mixed views
on the market
By Max Thompson
Max Thompson is a senior reporter at TXF.
A total of 65 senior professionals share their

views in the annual TXF-ICC survey on the export
finance market on a range of measures.
Export finance growth slowed in Total deal volume and the number of deals in export finance 2017
2017, according to the TXF-ICC
Global Export Finance Survey.
80,000 120
For export finance, power and 120
infrastructure were the most active 100

100
sectors, and Turkey the most active 60,000
country. Respondents said the 80
80
cost of export credit agency (ECA) 40,000 60

60
debt fell, which was good news for
ECA-backed borrowers, but less 40
40
20,000
favourable for banks. 20
20
The TXF-ICC Global Export Finance 0
0 0
Survey outlines the trends and
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
challenges in export finance, 2016 2017
based on the views of 65 senior
Sum of Volume in USD Number of deals
practitioners, from global heads of
export finance at leading banks, to
CEOs at ECAs and CFOs at major
exporters and importers. How does that compare with 2016?
4.0
4.0
Growth slows, 7.0
4.0 A decrease of 51%-75%
profitability holds A decrease of 21%-50%
TXF Data’s findings revealed total A decrease of 11%-20%

22.0
deal volume and the number of It's the same
deals fell sharply in 2017: 290 % An increase of 51%-75%
deals were signed for a volume of
An increase of 21%-50%
US$85.7 billion, compared with 4.0 48.0
7.0 An increase of 11%-20%
US$133 billion for 378 deals in 2016.
An increase of less than 10%
However, respondents’ views
were mixed on the market in 2017
compared with the year before.
About half (48%) said the number
of deals was the same. Some 41%
of respondents worked on as many
as five export finance deals in 2017.

Around a fifth (22%) said deals rose How has pricing in export finance changed over the last year?
11% to 20%, while 22% arranged
six to 10 deals, and 12% said the
0-5 41%
number of deals fell by 75%.
The good news is nearly half of 6-10 22%

respondents said the market in
2018 will grow, anywhere from zero 11-20 7%
to 10%. In fact, 81% said export
finance will be a profitable business 21-25 7%
line. Borrowers benefiting from
low prices have contributed to 26-40 4%
profitability.
41-70 4%
Still on top
70+ 15%
The survey showed the top three
sectors for export finance in 2017
were power and transmission (16%
of respondents), infrastructure
(13% of respondents), and industrial
production and processing
equipment (12% of respondents). What do you think will happen to the export finance market in 2018?
Transport was the most active It will contract by 0%-10% 11%

sector in 2017, with a deal volume
of US$19.5 billion, TXF data It will contract by 11%-25% 4%
revealed. Power ranked second
with a volume of US$18.9 billion, It will contract by 26%-50% 4%
while infrastructure was fourth at
US$8.3 billion, after oil and gas at It will contract by more than 50% 4%
US$17.2 billion.
It will stay the same 19%
Conventional power deal volume
supported by ECA in 2016 rose to It will grow by 0%-10% 48%
over US$30.0 billion from US$4.5
billion in 2015. But remove the It will grow by 11%-25% 11%
US$18.5 billion Barakah nuclear
deal from volume in 2017, and the
total was around US$1.0 billion less
than the previous year at US$10.0
billion.
Oil and gas downstream was cited

by 10% of respondents as a top Is export finance business currently a profitable
sector. Renewable energy was business line for your institution?
again close behind cited by 9% of
participants – 2% more than the 15.0
previous year. 4.0
Yes, it is profitable
Will renewables reign?
As the cost of building renewable % It currently breaks even
Don't know
energy generation begins to be
driven by economics rather than 81.0
government subsidies - and as

the cost of technology and debt
for building offshore has fallen in
Europe, the sector looks set for
continued growth. But the future
of renewables is far from certain,
as the way to implement the Paris
climate agreement remains under

FINANCE FOR TRADE
debate. But renewables developers What were your top three sectors for export finance?
and lenders should benefit, as
banks have to adhere to stricter Power / Transmission 16%
limits on coal-related lending and
emerging markets such as India Infrastructure 13%
and China diversify their energy Industrial production

12%
/ Processing equipment
mix away from fossil-based power
Oil and gas downstream 10%
generation.
Renewable Energy 9%
Shipping was lower ranked in 2017:
only 6% said it was a top sector Water / Sanitation 6%
compared with 8% of respondents
Shipping 6%
the previous year. But TXF data
showed the cruise ship sector had Mining and metals 4%
another record year in ECA-backed
Chemicals 4%
supported volume – breaking the
Telecommunications
US$18.0 billion ceiling. That is / Satellite
4%
up around US$3.0 billion on the
Oil and gas upstream 4%
previous record in 2014, when
Transport (excluding
volume just tipped US$15.0 billion, shipping and aviation) 4%
and up nearly US$5.0 billion from Agriculture / Food 3%
2016. The 40% jump in volume
reflects new orders from cruise Aviation 3%
lines, included US$1.0 billion-
plus financing for Carnival, Royal
Caribbean and Disney.
The survey results reflect TXF

data showing non-cruise ship
supported business dropped just
under US$1.0 billion compared with
2016. The freight new build market How has pricing in export finance changed over the last year?
stayed subdued in 2017. Only 0.0
tankers and the dry bulk sector 4.0
were a touch speculative because
of higher commodities prices and 8.0
11.0 Decreased by more than 20%
the deep discounts shipbuilders Decreased by 11%-20%
offered to keep yards working. 15.0
Decrease by 1%-10%
Stayed the same
After Turkey comes…
35.0 Increased by 1%-10%
Turkey was the largest export
finance borrower, followed by Increased by 11%-20%
27.0
Russia, China, India and the United Increased by more than 20%
States, which was slightly more
active.
Do you expect pricing to go up or down in the next 12 months?

Pricing – a double-
edged sword
As prices are the cornerstone of
profitability in an export finance
31.0
deal, it was good news for ECA- Up
backed borrowers that nearly half
of respondents said the cost of
46.0
% Down
Stay the same

debt fell last year, although two-
thirds said so in 2016.
23.0
Some 27% said prices fell 1% to 10%
in 2017, while 15% saw a price drop
from 11% to 20% (versus 27% of
respondents in 2016), and 12% said

prices fell more than 20% (versus Key drivers of pricing today
10% of respondents in 2016). About
a third (35% of respondents) said 8.0
prices stayed the same, compared
Compliance and regulatory
with 24% in 2016, while 12% said 19.0 31.0 requirements, including Basel III
prices rose up to 20% (versus 10%
Competition, including levels
of respondents in 2016). of liquidity in the market
One respondent said prices Lack of available projects

dropped 40%, in most cases. “Bank Cost of capital
margins were down over the last
42.0
year, and fixed or floating interest
rates of references had increased.”
One practitioner said ECA finance How have bank fees in export finance changed over the past year?
“has always been expensive” and “it
is much cheaper to finance through 0.0
4.0
commercial facilities and private
insurers.” 8.0
Decreased by more than 20%
When asked about prices in 19.0 Decreased by 11%-20%
15.0
the next year, nearly half of Decrease by 1%-10%
respondents (46%) expect pricing
Stayed the same
to stay the same, while one-third
see an increase, 23% predict a Increased by 1%-10%
19.0
continued fall. “Rates of reference Increased by 11%-20%
35.0
should increase again and margins Increased by more than 20%
will be stable,” one respondent
said.
In line with the 2016 survey,

prices continued their descent.
While banks can cope with this
short term, falling prices may be
unsustainable in the long term.
The key driver of pricing

was competition for 42% of
respondents, including high
liquidity, while a third cited
compliance and regulatory
requirements.
Clauses in the capital requirement

leverage ratio regime, under the
Basel III reforms to strengthen
regulation, supervision and risk
management of the banking sector,
still threaten to affect the cost and
availability of European ECA loans. The European Banking Federation is garnering support
A total of 19% of respondents also for revisions to ensure fair treatment and a 0% leverage
cited prices were affected by a lack ratio without caveats on an ECA-covered loan.
of available projects and 8% cited The lack of clarity over how to define ECAs under
the cost of capital. sovereign risk exposures will have a huge effect on the
applicable minimum RWA. Much higher RWA will be
Fees fall in sync with pricing required for other sovereign entities and ECA loans in
As in last year’s survey, bank fees in foreign currencies.
export finance fell in tandem with
With no clear cut decision expected from the EU Council
shrinking margins. Some 42% of
anytime soon, the outcome of these capital requirement
respondents saw bank fees drop
provisions will have a huge impact on the cost of
in the past year. A total of 19% said
European ECA debt.
fees fell 1% to 10%, while 15% said

FINANCE FOR TRADE
fees dropped 11% to 20%, and 9% What do you see as being the most prohibitive
said fees fell more than 20%. factors to doing export finance business in new
markets? (Please select your top three)
Fees dropped despite the
proposed introduction of capital
requirements under Basel III. But Sanctions 35%
35% said fees stayed the same and
nearly a fifth of respondents (19%) Fear of corruption 42%
said fees were rising. One fifth Insufficient knowledge
(19%) said fees rose from 1% to 10%, of markets 15%
and 4% said fees rose 11% to 20%. Lack of export finance product
46%
Some 4% said fees were 11% to 20% knowledge by borrowers
higher in the past year.
Existing competition 23%
Cultural issues,
A brake on growth including language 8%
A total of 54% of respondents said Concentration on currently
8%
the biggest obstacle to executing engaged markets
export finance in frontier markets
Political instability 23%
were legal and regulatory issues,
followed by borrowers lack of
Legal and regulatory hurdles 54%
export finance knowledge (46%),
corruption fears (42%), and Liquidity and access
to credit lines 31%
sanctions (35%).
Taxes 4%
To deal with these issues, 52% of
respondents said they struggled
with regulatory requirements and
42% struggled with sanctions, in
line with last year’s survey.
What is your preferred Are ECAs doing enough
Political instability, competition,
method of export finance? to support SMEs today?
access to credit lines, taxes,
liquidity and cultural issues were 4.0
less concerning to respondents. 4.0 7.0 7.0
4.0
33.0
Most favoured
ECA-backed loans topped the
charts as the preferred type of
export finance: three quarters 67.0
of respondents (74%) used ECA
cover. A total of 7% of respondents 74.0
said ECA direct loans and letters

of credit were preferred, while 4%
each preferred pre-export loans, ECA loan Yes
prepayment loans, and privately ECA covered loan No
insured loans. Privately insured loan
Most respondents agreed that Prepayment loan

the preferred export finance Pre-export loan
methods had not changed. But L/C
one respondent said the industry
is moving more and more to
privately-insured loans. “More
customers asked for ECA finance
and there is now more flexibility ECAs need to raise awareness and educate companies, especially
for meeting a buyer’s needs,” said SMEs, on export finance product offerings. These offerings
another respondent. include buyer and supplier credit agreements and direct loans.
While the export finance market Getting SMEs access to new markets and better access to export
is growing each year according finance goes hand-in-hand. ICC’s Working Group on Export
to TXF data on big-ticket growth, Finance can help by harmonising products and marketing.

nearly two thirds (67%) of Are we seeing enough innovation in the export finance market today?
respondents said ECAs are still not
doing enough to support SMEs.
Some said ECAs need to simplify
product suites to cover the basic
needs of SMEs in the short, medium 37.0
and long term.
63.0
Gauging the gap for SMEs
Respondents estimated the gap
in unmet demand for small tickets
was ¤2.0 million to ¤4.0 million.
Respondents also said the reasons Yes

SMEs are not being well serviced No
is that many ECAs are country-risk
averse, must adapt to changing
markets, and that SME business Significant challenges to institutional investors entering export finance
may not be profitable and is
resource intensive to take on.
Lack of understanding of product
64%
But one third (33%) of respondents and associated risks
said ECAs were doing enough to Investors wanting higher yield than
41%
support SMEs. One said SMEs are the product typically offers
welcome to ECA processes, but
added that marketing is often used Pricing 32%
for political positioning to help

Lack of harmonisation and
ECAs avoid criticism that they are 27%
standardisation of product
only helping large corporations.
Concern over liquidity of assets 23%
Growing pains from
globalisation Less need from banks to distribute 18%
Respondents also stated a need

for ECAs to collaborate. “ECAs Other 14%
still need to fully support or co-

underwrite the risks between Lack of pooling options (securitisation) 14%
other ECAs on the larger deals,”
one respondent said, adding, Push back from corporate clients 5%
“Globalisation has out-grown
solutions from one country.”
A majority of respondents
(63%) said innovation was
More vision than reality? standardisation, and concerns over
lacking in the export finance
asset liquidity.
market. Respondents said ECAs Respondents were not convinced
need to be more flexible, make fintech would have an impact in the Other issues respondents cited
recommendations on payment next two to three years, collectively for institutional investors were
security, change the 15% down scoring 2.54, where one point is no prepayments and long draw-down
payment, come up with more impact and five is very high impact. profiles, since the longer the draw-
capital market solutions, take a down period, the less profitable the
Looking at what are the obstacles
less sophisticated approach to risk investment.
for institutional investors to enter
portfolios, and provide equity to
the export finance market, some
projects.
64% of respondents said lack of
One respondent said the private understanding of the product and
Background information
insurance market needs to be on a associated risks was the biggest
more level playing field with ECAs, obstacle, with low yields as the TXF provides data, news and
and lenders need to look beyond second biggest challenge, followed trends in trade and export
export finance solutions to the by pricing, lack of harmonisation, finance, and supply chain and
private market. the need for product commodity finance.

FINANCE FOR TRADE
Export credit and investment insurance/Strong performance, but political risks cast a long shadow
Export Credit and Investment

Insurance/Strong performance,
but political risks cast a long
shadow
by Paul Heaney
Paul Heaney is Associate Director at Berne Union
2017 was a good year for underwriters of export

credit and investment insurance, but the current
environment for political risks remains delicate.
The global economy is which dropped 27%2. Investment barriers has been acted upon rather
levels in most developing markets than diminished. Traditional trade
currently in good health
were broadly level with 2016. tariffs, such as President Trump’s
by a number of measures proposed taxes on metals imports
2017 saw positive growth in Foreign direct to the US, and a wider discourse
both trade and GDP, exceeding
expectations, following a difficult
investment is that is ratcheting up trade tensions
are part of the news cycle3.
2016. Stock markets are currently down 16%
booming and oil prices are back The real possibility of an
comfortably above the US$50 This may indicate investors have international ‘trade war’ puts
per barrel threshold, which had a lingering uncertainty about the pressure on the world trade system
signalled the broader crash in long-term outlook, despite outward and threatens to undermine the
commodities prices from 2014 to expressions of confidence. Much rules by which it operates. In the
2016.1 of this uncertainty stems from modern world, restrictions would
concerns relating to political risks apply not just to goods, but to the
This is good news for export and policy issues which could derail movement of data and people. All
credit insurers and Berne Union the current situation, rather than of which increases the cost of doing
members, who reported an uptick purely economic conditions. business.
in new business in almost all areas,
including a return to growth in In last year’s review, the outcome
of the US presidential elections, the
Credit and investment
medium- to long-term (MLT)
business after five years of almost Brexit vote, and divisive elections insurance is performing well
steady decline. A notable exception in several European countries were This is positive news for both
is investment insurance: new cover cited as potential disruptors to the insurers of trade and for the
fell 7% to US$$5.0 billion, the first business climate for insurers of underlying economy which depends
drop since 2013. trade credit and political risks. upon this. Indemnifications are
also high: which is good news for
In contrast to the positive indicators While the worst fears have so
the insured and also a positive
noted, foreign direct investment far unrealised, a ramp-up in
reflection of the important role
(FDI) fell around 16% in 2017. This protectionist politics continues to
export credit insurance plays in
was largely due to a downturn in give Berne Union members pause.
helping to maintain economic value
investment into developed markets, A year later, the threat of trade
chains, despite risks.

At the same time, industry New business by product
measures of long-term
US$ million
sustainability (such as loss
2,500,000
ratios) are benign, and there
is no indication that claims are
becoming unmanageable. 2,000,000
New business underwritten by

members of the Berne Union in 1,500,000
2017 totalled US$2,330 billion,
split among these business
1,000,000
lines4:
• short-term export credits

500,000
US$2,088 billion
• medium/long-term 0
export credits
2013 2014 2015 2016 2017
US$179 billion
ST export credits MLT export credits Investment
• investment insurance
US$64 billion
New business as a % of world trade
Berne Union members’ share
of world trade in 2017 was over US$ billion
14%*, up from a 12% share in 16%
20,000
2015. World merchandise trade
grew 3.6% in 2017 to US$16.6
16,000
trillion. 12%
12,000
8%
8,000
4%
4,000
References and notes 0 0%
1. According to WTO sources, 2013 2014 2015 2016 2017

estimated trade growth in
2017 is 3.6% - upgraded from WTO (%) BU WTO
an earlier prediction of 2.4%.
www.statista.com gives the
average price of oil over 2017 at Public and private share of new business
US$ 54.25 pb, and as of March
2018 the price of WTI crude is 100%
US$61.14 pb.
2. See UNCTAD ‘Global Investment 80%

Trends Monitor’ from January
2018 51% 51% 52% 54% 59%
3. Renegotiation of NAFTA, US 60%

87% 86% 88% 85% 88% 90% 80% 85% 85% 85%
withdrawal from TPP, and the
demise of TTIP
40%
4. This split gives an indication of
the relative volumes recorded
49% 49% 48% 46% 41%
in each of the relevant business
20%
lines, rather than by the
standard committee reporting
13% 14% 12% 15% 12% 10% 20% 15% 15% 15%
structure of the Berne Union
0%
(whereby the ‘MLT’ committee
includes only ECA members,
t
rt
rt
rt
t
or
en
en
or
en
en
en
po
po
po
p
p
tm
and the medium/long-term

Ex
Ex
Ex
Ex
Ex
st
st
st
st
es
ve
ve
ve
business of private members is

ve
v
In
In
In
In
In
rather reported within the ‘INV’

2013 2014 2015 2016 2017
committee.
MLT Private MLT Public MLT Public MLT Private

FINANCE FOR TRADE
Reporting changes Yearly claims paid

The sharp growth in new
US$ million
business, up 22% from the
previous year, comes with a 7,000
large caveat. One member of the
6,000
short term (ST) committee – ST
is by far the largest by business 5,000
volume - previously reported
on a single subsidiary but now 4,000
reports at group level, which
accounts for 77% of this rise. 3,000
At the same time, to improve 2,000

the overall accuracy of Berne
Union data, the definition 1,000
of stock data for short term
0
‘commitments’ has been refined.
2013 2014 2015 2016 2017
This now corresponds precisely
to ‘aggregate credit limits’, and MLT ST INV PCC
is recorded separately to the
Yearly recoveries
‘utilised amount’, previously
reported by some members7. US$ million
Based on the members affected,
6,000
this change has caused an
increase of 10% to 13% across the
5,000
portfolio.
Even adjusting for these 4,000

changes, the total portfolio was
up around 5%, double the 2.5% 3,000
growth in 2016, and continues
the long-term trend of an 2,000
increasing share of world trade
covered. 1,000
Following the trend established

0
in 2015 and 2016, Berne Union
2013 2014 2015 2016 2017
members again paid over
US$6.0 billion in claims in 2017. MLT ST INV PCC
This is well above the 10-year
average of US$4.5 billion, but
still 2.4% under the 2016 peak.
If we look only at claims relating Private members’ Short- term insured
to short-term business we see share of new short turnover rose 5%
a much more significant drop
of 10%, year on year. The less
term business in
impressive change seen in the 2017 rose to 59% of Short-term export
overall portfolio is due to a credit insurance
handful of significant claims
the total Berne Union defines short-term
in longer term business and Overall, claims remain high, but business as the insurance of
investment insurance, where in the context of larger business exports with repayment terms of
high claims in a single year are volumes appear manageable, and less than one year, and often much
not indicative of a more general there are encouraging signs of less is standard: 30, 60 or 90 days.
trend. improvement. 5 Policies indemnify the insured
against losses from non-payment,
Recoveries in 2017 totalled just protracted default of a buyer due to
under US$3.0 billion, less than insolvency, or due to political risks
50% of nearly US$ 6 billion in 2016, beyond the control of the buyer.
but higher than the average in Policies may cover multiple buyers
recent years. Short term business and the insured’s entire turnover, or
especially improved. single risks on selected buyers.

Short-term business typically Short-term export credit insurance: Insured
concerns shipments of consumer turnover and year-end credit limits
goods and commodities. It is US$ trillion
the business line most sensitive
2.5
to changes in the real global
economy.
2.0
Public institutions and private
insurers provide short-term
export credit. The share of 1.5
short-term business of private
members in the Berne Union
1.0
rose to 59% in 2017, up from 54%
in 2016.
0.5
Members collectively reported
over US$2.0 trillion in insured
turnover in 2017, representing 0
90% of total new business; by far 2013 2014 2015 2016 2017
the dominant activity of Berne

Turnover Business Covered Credit Limits at year end
Union Members.
Adjustment Adjustment
This insured turnover is 27%
higher than the year before. Short-term commitments by region 2017
As previously stated, a large US$ million
portion of this is due to changes
1,000,000
in reporting rather than organic
growth. But even taking this into
account, insured turnover grew 800,000
5% on aggregate, building on 3%
growth on 2016.6 600,000
Year-end commitments are stock
data which give an indication 400,000
of members’ risk appetite, and
stood at US$1.67 trillion in 2017.
200,000
0
Europe Americas Asia MENA S.S. Africa Oceania
Rest of Europe S. Asia N. America Other Middle East
5. Across the whole portfolio, the
Russia & CIS E. Asia GCC S.S. Africa
ratio of business underwritten
to claims paid fell from 0.34% to ASEAN South and N. Africa Australia & Oceania
0.27% in ST, turnover to default Central America
ratio fell from 0.17% to 0.12%.
6. This is a conservative estimate, Short-term loss ratio and adjusted loss ratio
since at time of printing a small
number of members have not 100%
yet reported figures for insured
turnover, which is therefore 80%
estimated, based on credit limits
outstanding at year end.
60%
7. Aggregate credit limits reflect
the maximum limit of liability
of the insurer, ie. the aggregate 40%
value of credit limits set for
foreign buyers under all issued 20%
policies – including self-retention
portions. Utilised amount is
defined as the amounts under 0%
cover at the half-year for which 2013 2014 2015 2016 2017
premium has been paid or
invoiced. Loss ratio Average LR prev 10 years
Adjusted loss ratio Average ALR prev 10 years

FINANCE FOR TRADE
This figure has also been affected Medium/long-term new business insured
by the reporting changes
mentioned above, resulting in a US$ million
massive 66% increase compared to
200,000
2016. Adjusting for those changes
it is estimated that commitments
nonetheless grew by 13%, as 160,000
illustrated in the graph adjacent.
European markets had the 120,000

highest penetration of short-term
export credit insurance, 55% of 80,000
outstanding exposure. Asia, the
Americas (split 50/40 north and
south) make up the remaining 20% 40,000
and the rest of the world only 5%.
The largest single obligor country 0
is the US, which alone accounts for 2013 2014 2015 2016 2017
9% of commitments in 2017. This
distribution is roughly in line with Corporates Sovereign Other Public
previous years. Projects Unspecified Banks
Members paid US$2.5 billion in

claims in 2017, making up 40%
of the Berne Union total across Medium/long-term exposure at year end
all reporting committees. This
is around 30% higher than the US$ million
10-year average for short-term 800,000
business since 2007, but 10% lower
than 2016, despite the increase in 700,000
business covered.
600,000
The distribution of claims does not
500,000
line up exactly with country and
regional exposure. Russia and the 400,000
Commonwealth of Independent
300,000
States (CIS), sub-Saharan Africa
and Gulf Cooperation Council 200,000
(GCC) countries all received a
100,000
higher share of claims compared
to commitments. The claims-to- 0
exposure ratio across the entire 2013 2014 2015 2016 2017
portfolio is 0.15, but for these
Insurance Lending
regions it is 0.61, 0.53, and 0.45
respectively.
Short-term claims paid – top five countries (US$ million)
387
109
146
United States
91
China
117 India
United Arab Emirates
Brazil 8. Claims/premium
9. [Claims-recoveries]/premium

The country with the highest Medium / Long-Term New Commitments 2017 - by region
exposure, the US, also has the
highest volume of claims, followed US$ million
by the United Arab Emirates (UAE), 40,000
Brazil, China and Russia. These top
five countries make up 36% of the
total for the year.
30,000
Overall the default-to-turnover
ratio fell to 0.12 from 0.17 and the
loss ratio8 fell to 68% from 74%. 20,000
The adjusted loss ratio9 improved
to 50% from 63%, after strong
recoveries: members collected 10,000
over US$600 million last year, at
least 60% higher than the average
for the decade. These indicators 0
show that while the market is still in Asia Americas MENA S.S. Africa Europe Oceania
a period of high claims, for short-
term business this has stabilised Rest of Europe S. Asia N. America Other Middle East
somewhat since the peak in 2016. Russia & CIS E. Asia GCC S.S. Africa
ASEAN South and N. Africa Australia & Oceania
Despite these improvements, the Central America
insurance cycle for core markets
is soft, and members still report
pressure on pricing from the Claims paid
competitive market.
4,000
Premium income grew a slight 2.5%
in 2017 lower than the 5% rise in
turnover, suggesting better loss
3,000
ratios were due to improved claims
and recoveries, rather than higher
profits. The premium-to-turnover
2,000
ratio fell marginally in 2017 to
0.205% from 0.218% in 2016 .
1,000
Medium and long-term
export credit insurance
0
The Berne Union’s medium- and
2013 2014 2015 2016 2017
long-term (MLT) committee
records support in the form of Commercial Political NPL
insurance, lending and guarantees
by official state-backed export
credit agencies (ECAs) for form of direct loans. New business Around a quarter of new MLT
capital goods exports and large was 6% higher than in 2016, ending cover was for risks in Asia, with
infrastructure projects. These a five-year run of steadily shrinking the rest roughly divided among
transactions have tenors longer volumes. While MLT business has North America, the Middle East and
than one year, but often three, five, returned to growth, this is the North Africa (MENA), and sub-
and seven years and up to 10 years. lowest volume of new business Saharan Africa. The US remains
Some private members of the recorded in the past 10 years, the single largest obligor country:
Berne Union are also active in except for 2016. new business in the US rose 16%.
medium and long-term business, Significant growth was also seen
The rise in new business also
but these statistics are currently in India (increasing by over US$ 11
reverses the fall in portfolio
reported within the ‘INV’ billion), ASEAN (Indonesia & Laos)
exposure which kicked in after
committee, and are included in the and GCC (Kuwait, Qatar and UAE).
several sluggish years. Total
next section. exposure at the end of 2017 stood Most new business was with
Members provided US$141 billion of at US$751.0 billion, which includes corporate obligors, amounting to
new cover in 2017, 10% of this in the US$67.0 billion in loans. US$73.0 billion. Their share of the
total also rose to 52% from 43%

FINANCE FOR TRADE
in 2016. Sovereign commitments Medium / Long-Term Recoveries by year

also increased to 29% of around
US$41.0 billion, while new US$ million
commitments to projects fell over
6,000
US$5 billion to just 5% of the total.
Lending activities ‘maintained the
performance’ of 2016 at US$14.4
4,500
billion of new commitments, mostly
to corporate obligors in the US,
Canada, India and Mexico.
3,000
Members paid US$2.9 billion in
claims in 2017, almost 3% lower
than in 2016, but still about 40% 1,500
higher than the 10-year average up
to 2014, before the last period of
elevated claims from 2014 to 2017. 0
Brazil and Russia were again the 2013 2014 2015 2016 2017
top 2 countries for MLT claims,
Political Commercial NPL
joined by Spain, Ukraine and
Germany in the top 10. But claims
paid fell in all of these countries, Medium / Long-Term Claims by Region over the past 5 years
except Germany. At the same time,
claims rose in Singapore, Canada, US$ million
Vietnam, Tanzania and the UK and 6,000
all joined the top 10 this year.
Looking at MLT claims paid over 5,000

five years, 40% were in Europe,
(with 40% of these in Russia and 4000
CIS countries), 24% in MENA
countries (70% of these in GCC 3,000
countries) and 25% in the Americas
(70% of these in North America). 2,000
Claims in Asia were just 8% and
sub-Saharan Africa 3%. 1,000
Commercial claims still dominate,

0
continuing the trend of the previous
Europe MENA Americas Asia S.S. Africa Oceania
two years and now make up 88%
of the total. For comparison, only
three years ago, political claims Russia & CIS E. Asia GCC S.S. Africa
comprised 48%. ASEAN South and N. Africa Australia & Oceania
Central America
The situation is reversed for
recoveries: members reported
US$1.45 billion in recoveries for
political claims compared to
US$737 million in commercial
claims. Overall recoveries in 2017
came to $2.2 billion. This is back
to more usual levels, following a
remarkable year in 2016. References and notes
Political recoveries tend to be 10. ‘INVI’ including: political 12. ‘INVO’ – predominantly medium/
higher but spread over a longer violence, expropriation, currency long-term untied export credit
period, so it is encouraging that transfer and convertibility risks, insurance.
even though recoveries in 2017 11. ‘INVS’ – credit insurance

were lower than the year before, products, providing cover
against the inability or
commercial recoveries were much unwillingness to pay by sovereign
higher - 32% more than the 10-year and sub sovereign obligors
average.

Offers outstanding are the highest Investment Insurance New Commitments
since year-end 2014, and 17% higher
than 2016 at US$106.0 billion, with US$ million
strong appetite in the US, Latin
America (Peru, Brazil, Chile), south 120,000
Asia (India, Bangladesh) and the 17,969
Middle East (Iran, Saudi Arabia and

13,223 12,491 14,015
Oman). 13,706 26,345
80,000 33,226 25,194 21,107

13,957
Investment and other cross- 69,023
66,112
border risk insurance 61,450
63,881
52,856
Under the investment insurance 40,000
committee (INV) reporting line,
Berne Union members report
insurance of overseas investments
against political risks10, as well 0
as non-honouring of sovereign
2013 2014 2015 2016 2017
obligations11, and other credit
insurance protection against
INVI INVO INVS
political and commercial risks for
items such as bonding and untied
loans.12 This includes medium to Investment Insurance Claims Paid
long-term trade credit insurance of
private insurers. Starting in 2018, US$ million
some of these distinctions will
600
become clearer, as Berne Union
reporting shifts from reporting by
committee to reporting by business 450
line.
New commitments reported under 300
INV came to US$99.0 billion in

2017. While this is some US$14.0 150
billion lower than the year before,
2016 was a record year for new
0
business. The 13% drop is probably
2013 2014 2015 2016 2017
more a correction to usual levels
than a serious downturn. INV0 Political Violence INVS Unspecified
Portfolio exposure continued to Expropriation Transfer Breach of Contract
rise, 6% higher at US$289.0 billion,

split roughly as follows: 55% of
investment insurance (INVI), 30% of Investment Insurance Recoveries
other cross- border trade (INVO),
and 15% of sovereign non-payment US$ million
(INVS). 40% of combined INV 120
exposure relates to risks located
in Asia, and the remainder is fairly
equally divided among Africa, 90
Europe and the Americas.

60
Overall claims paid came to
US$545.0 million: a huge increase,
and 76% higher than 2016 due to 30
a dramatic spike in INVI claims,
combined with a high level of INVO 0
sustained from the previous year 2013 2014 2015 2016 2017
along with a modest increase in
INVS. INV0 Political Violence INVS Unspecified
Expropriation Transfer Breach of Contract

FINANCE FOR TRADE
Global recoveries were impressive: INVI 2017: New Business By Region

US$103.0 million for all members,
relating to claims paid for sovereign US$ million
and sub-sovereign non-payment in 30,000
China, Gabon and Turkey, and trade
transactions in the Ukraine.
Investment insurance (INVI) 20,000

New cover for investment insurance
in 2017 fell 6% from the year before
to US$64.0 billion. Efforts to
harmonise divergent data reporting 10,000
from some members on how new
commitments are interpreted also
had a small negative effect on INVI,
and likely accounted for most if not 0
all of the drop.13
Asia Europe Americas S.S. Africa MENA Oceania
ASEAN, CIS and Latin American
countries each accounted for
20% of new business, while Asia,
sub-Saharan Africa and the rest of Central America
Europe each accounted for 10%.
The top countries by business
volume reflects these trends:
Kazakhstan, Vietnam, Indonesia, INVI claims by region In the last five years
China and Uzbekistan.
US$ million
Members collectively paid
US$232.0 million in claims under 300
investment insurance policies in
2017, an all-time record, due to 250
a large political violence claim
in Libya. That a single claim 200
can so dominate the overall
statistics underlines two essential 150
characteristics of this business: that
claims are relatively rare, and when 100
they do occur, are often sporadic,
isolated, and sometimes large – 50
such is the nature of the underlying
risks involved. 0
Recoveries on investment insurance MENA Europe Asia S.S. Africa Americas

claims are unusual. The only
noteworthy recovery in 2017 was
US$11.0 million for a claim in Turkey.
Central America

13. In this case, one high-volume
member’s internal accounting
classified yearly policy renewals
as ‘new commitments’ which in
previous years will have unduly
boosted figures.

Trade credit insurance of INVO+S: New Business By Region 2017
state obligations (INVS) US$ million
Members provided US$14.0 billion
12,000
of new cover for sovereign non-
payment risks in 2017, which was
20% lower than the 2016 high, but
notably higher than any previous
year. 8,000
Business continued to boom in

Sub-Saharan Africa, which now
accounts for almost a quarter of
4,000
total new cover provided, with
Kenya, Ethiopia, Cameroon and
Zambia showing the most growth.
Asia’s share of new business also
0
increased, up to 12%, from 9% in
Asia Europe Americas S.S. Africa MENA Oceania
2016. The share for most other
regions either stayed the same, or
decreased slightly. Top countries
for new commitments were: Turkey, ASEAN South and N. Africa Australia & Oceania
India, South Africa, Oman and Central America
Egypt.
INVS also recorded an exceptionally

high year for claims due to INVO + S claims by region in the last five years
individual defaults. Two claims, a
US$ million
US$41.0 million in Gabon and a
US$15.0 million claim in Venezuela,
300
accounted for most of the US$76.0
million recorded. Significant
250
recoveries in Gabon of US$16.6
million and China of US$13.5 million
200
contributed to the yearly total of
US$43.7 million.
150
Other cross-border
100
trade (INVO)
Mirroring INVS, new business 50
reported under INVO fell 20%
to US$21.0 billion in 2017. New 0
commitments for obligors in the Americas Europe Asia S.S. Africa MENA Oceania
United States fell sharply, knocking
it off the top spot, into second Rest of Europe S. Asia N. America Other Middle East
place behind Indonesia. Strong Russia & CIS E. Asia GCC S.S. Africa
performance here, along with ASEAN South and N. Africa Australia & Oceania
Singapore and Malaysia, helped to Central America
increase the share of new business
in ASEAN countries considerably,
while a three-fold increase in
Claims paid in 2018 fell by more In line with the trend in other
commitments in India added to the
than 10% year on year, but at business areas, 2017 was a good
total for Asia.
US$226.0 million are still double year for INVO recoveries: members
Europe maintained its share, thanks the five-year average. This was collected US$46.0 billion, with
to strong performance in Turkey mostly due to a large claim in Brazil the largest share collected from
and the United Kingdom. South and which accounts for almost 60% of Ukraine, China, Thailand, Brazil and
Central America also registered the total as well as a few small but Mexico.
gains, thanks to strong performance significant claims recorded in the
in Mexico, Colombia and Argentina. Ukraine, Greece and Chile.

FINANCE FOR TRADE
Multilateral Development Banks/No letup in expansion
Multilateral Development Banks/

No letup in expansion
Compilation and introduction by Thierry Sénéchal with input from representatives of
multilateral developments banks featured: AfDB, EBRD, IDB Invest, IFC, and ITFC.
Thierry Sénéchal is Founding partner, Finance for Impact.
A deep dive into multilateral development banks on

trade finance activities, and what’s in the pipeline.

Several Multilateral Development Last year alone MDB programmes do not take
Banks (MDBs), including the the payment risk of the local
Asian Development Bank (ADB), multilateral banks firm applying for a trade finance
the African Development Bank helped get trade instrument. But an MDB can
(AfDB), the European Bank for influence the risk appetite of
Reconstruction and Development finance worth the local issuing banks for SME
(EBRD), the IDB Invest (a member US$30 billion in banking, by providing lines of credit
of the Inter-American Development dedicated to this business segment.
Bank IDB Group), the International countries with the
The development impacts of these
Finance Corporation (IFC), and biggest shortfall trade finance programmes are
the International Islamic Trade
MDBs have not only raised the straightforward: they enable viable
Finance Corporation (ITFC),
limits of these programmes, trade transactions that otherwise
operate large-scale trade finance
they have also diversified the would not happen because of the
programmes, offering products and
product mix. Traditionally, most inadequate supply of trade finance
services to facilitate cross-border
programmes provided guarantees on reasonable terms.
trade in emerging and developing
economies. to reduce the perceived risk of More generally, these multilateral
conducting trade operations in programmes are seen as a robust
Demand for these programmes rose developing countries: they close response to market constraints,
sharply during the 2008 to 2009 the “confidence gap” between including:
financial crisis and have remained perceived and actual risk. Some
high, due to persistent financing • perceived high credit risk
MDBs, such as ADB and AfDB, also
gaps. According to the Asian of local issuing banks
offer risk participation agreements
Development Bank, the total value (RPA) to provide risk protection on • internal constraints to the
of unmet demand is nearly US$1.5 a portfolio basis rather than on a confirming bank, such
trillion, with estimates approaching transaction-by-transaction basis. as limits for higher-risk
US$100 billion for Africa and
countries or issuing banks
US$700 billion for developing Asia. Today many MDB trade finance
programmes also propose funded • international regulations
Unmet demand for products, such as short-term that affect costs and
financing facilities or revolving
finance by SMEs in credits. Some MDBs offer
capital requirements
the developing world specialized solutions, including

• political, social and economic
country risks affecting
Islamic finance, soft commodity
is nearly US$1.5 facilities, and equity support, which
banks’ performance
trillion have been in great demand in By helping the private sector in
developing countries. developing countries overcome
MDBs have ramped up these trade
finance programmes in response financial constraints to cross-border
This 2018 report also shows MDBs
to financial market shocks and trade, MDBs play a crucial role, by
have boosted their support of
tightening credit conditions, that giving a major push to economic
small- to medium-sized enterprises
reduced the risk appetite of private growth and poverty reduction in
(SMEs). In general, startups,
financiers. their countries of operations.
and smaller enterprises led by
youth and women in developing
Over the last decade, MDB support
countries face major challenges in
MDBs close the
in trade finance amounted to
US$168 billion, representing about
accessing credit. They often have ‘confidence
less collateral, weaker management
100,000 cross-border transactions.
abilities and lack access to key data
gap’ between
In 2017 alone, trade finance
programmes helped facilitate 11,720
and information, reducing their perception and
cross-border trade transactions for
likelihood of getting bank credit.
reality of risk
a total value of over US$30 billion For example, globally over half of
in markets with the biggest gaps in SME requests for trade finance
provision. are rejected, while only 7% of
multinational company requests are
turned down. As the table below
shows, SMEs make up a large share
of MDB trade finance programmes.
In 2017 for example, in three out
of the six programmes, SMEs
represent over three quarters of the
end beneficiaries.

FINANCE FOR TRADE
ADB AfDB EBRD IDB INVEST IFC ITFC

Program Title Trade Finance Trade Finance Trade Facilitation Trade Global Trade ITFC Trade
Program (TFP) Programme Programme (TFP) Finance Finance Finance
(TFP) Facilitation Program Program (TFP)
Program (GTFP)
(TFFP)
Number of 22 49 26 21 85 51
Countries of
operation
Organization 17 1 Division 7 trade finance 10 42 74
structure Manager plus bankers and 5
(Staff, outside 8 staff and 1 administrative
consultants…) consultant staff
Program 2004 2013 1999 2005 2005 2008
Commencement
Program total US$1 billion US$1 billion US$ 1.8 billion US$1.5 billion US$5 billion No limit
limit (authorized (for guarantees
exposure ceiling) only)
Type of financial 1. Guarantee 1. Risk 1. Guarantees Credit GTFP provides Murabaha
products Products: Participation issued trade Guarantees up to 100% Financing,
Credit Agreement finance and loans coverage on Two-steps
Guarantee; Risk (guarantees) instruments, e.g. the country and Murabaha
Participation L/Cs, SBL/Cs, commercial Financing and
Agreement 2. Trade Finance advance payment risks of Structured
Line of Credit bonds, payment individual Trade Finance
2. Funded guarantees, bid trade-related
Products: 3. Soft
Commodity and performance instruments.
Revolving bonds, trade-
Credit Facility; Facility Other trade
related
Funded Risk 4. Equity promissory programs
Participation support notes and bills of include GTLP
Agreement exchange. (Funded/
unfunded
3. Distribution 2. Short- portfolio),
Product (Co- term loans to CCFP, GWFP
finance): Risk selected banks (Commodity
Distribution and factoring Finance), GTST
Agreement companies (Structured
Trade), Working
Capital
Solutions, and
GTSF (Supplier
Finance).
Type of non- Active 1. Thought Donor funded Technical Training, Policy
financial services knowledge leadership – advisory services assistance Capacity work, trade
Products and Africa Trade and trade finance and building facilitation,
dissemination Finance Market training for knowledge trade
to inform Studies partner banks creation promotion,
bankers and and their clients technical
insurers of 2. Training of and regulators assistance,
risks and local FIs on capacity
opportunities compliance and building,
in the TFP trade finance trainings,
countries of 3. Technical integrated
operation. assistance trade
Training and to local FIs – programs
seminars in improvement
trade finance of systems and
and banking to processes
build expertise
Number of 16,607 (2009- 1,650 21,000 1,774 (credit 57,000 602
Transactions 2017) guarantees
since issued
Commencement and loans
disbursed)

Value of US$ 30 billion US$ 6.65 billion US$ 18.5 billion US$ 5.9 US$ 64 billion US$ 40.2
Transactions (2009-2017) billion billion
since supporting
Commencement US$ 9.1
billion
underlying
transactions
Number of 3,505 330 1,905 178 5,750 53
Transactions in
2017
Value of US$ 4.5 billion US$ 1.76 billion US$ 2.3 billion US$ 750.3 US$ 6.7 billion US$ 4.9 billion
Transactions in million
2017 supporting
US$ 929.8
million
underlying
transactions
Number of 240 14 800 100+ 1400 NA
Correspondent
Banks
Number of 150 365 95 105 285 NA
Issuing Banks
Possibility to Yes Yes Yes Yes No Yes, on
work with public both Trade
sector financial Development
institutions? and Trade
Finance
% of SMEs in 81% 58% 78% 84% NA 15%
Portfolio in 2017
Claims to Date 0 1 bank – due to 2 0 0 0
receivership

FINANCE FOR TRADE
Asian Development 27% of the total value of associated with some trade
transactions TFP supports transactions.
Bank (ADB)
Funded products TFP also increased its share of
Value proposal and product mix
• A revolving credit facility transactions covered under its
ADB’s Trade Finance Programme
gives loans directly to banks unfunded risk participation product
(TFP) helps close market gaps for
in TFP countries of operation to 85% from 50% to help the
trade finance in tough markets. It
to support pre- and post- private sector assume more risk in
does this by providing banks with
shipment transactions, about developing Asia.
guarantees and loans to support
trade in sectors from commodities 2% of the total value of
Measuring the trade finance
to capital equipment, medical transactions TFP supports
gap and its impact
supplies to consumer goods. • A funded risk participation ADB’s TFP is the first and still the
ADB has a large product mix: agreement pilot launched only information source quantifying
in 2017, which automatically the global market gap in trade
Guarantee products binds the TFP for up to finance and its impact on economic
• Credit guarantees cover up to half of bank risk to support growth and jobs. In September
100% of bank risk, provided funded trade transactions 2017, TFP launched its annual Trade
within 24 hours, representing Finance Gaps, Growth and Jobs
70% of the total value of Distribution product (co-finance) Survey at the GTR Asia Trade and
transactions TFP supports • A risk distribution agreement Treasury Week in Singapore. The
that leverages capital resources study was discussed at the United
• A risk participation agreement and credit limits by sharing risk, Nations in 2017 to assess how the
automatically binds TFP up to around 36% of the total value trade gap affects achievement of
85% of bank risk to support of transactions TFP supports the Sustainable Development Goals
trade transactions, about
(SDGs).
Market trends in 2017 Gender equality

The TFP programme grew exponentially in 2017, supporting over 3,500 A gender initiative gathered and
transactions valued at US$4.5 billion in 2017, up 68% in the number of assessed the human resources
transactions and a 43% rise in value, compared with 2016. About 2,845 of policies of 19 banks in eight
these transactions supported SMEs, a 77% lift from 2016. countries to see what could be
done to attract, retain and promote
Performance was driven by trade growth, high regional economic growth, more women in banking. Some of
new demand for power generation, longer tenor transactions to support the recommendations have already
infrastructure, and new banks and facilities. been taken up.
value of transactions co-financing number of SMEs First bank internship
supported transactions supported
A bank internship programme was
2017 US$4.5 billion US$2.8 billion 3,505 2,822 launched for knowledge sharing
2009- US$30 billion US$18 billion 16,607 12,026 between partner banks, help
2017 establish robust trade finance
operations, forge new business
Over 90% of TFP’s transactions in partially cover the import of gas links across regions and promote
2017 were in challenging markets. turbine parts to Vietnam from more intra-regional trade and
Armenia, Bangladesh, Mongolia, Switzerland; a EUR9.0 million cooperation. The participants were
Pakistan, Sri Lanka and Vietnam partial guarantee to support plant based in Georgia and Tajikistan.
were the most active countries machinery and equipment from
in the programme. Landmark Italy for a rolling mill in Pakistan; Online training
transactions in 2017 included: a and a first transaction in Myanmar To build the skills of trade finance
US$30,000 pre-shipment loan to covering the import of fertilizers professionals at TFP member
finance the export of cocoa beans from Italy. banks, ADB partnered with
from Samoa to Japan, one of the the International Chamber of
first transactions supported by Achievements in 2017 Commerce Academy and delivered
TFP in the Pacific Islands; a US$75 New products and coverage two accredited and globally
million club facility to support TFP launched and carried out a new recognized online courses attended
imports and exports for Georgia’s funded risk participation product. by over 150 bankers from 80 banks.
key economic sectors: agribusiness, The product will help international
transportation, and energy; a banking partners comply with
EUR18.5 million guarantee to evolving regulatory requirements
and defray the funding costs

Market constraints 81% of the portfolio relates to SME Outlook
The ADB’s Trade Finance Gaps, transactions. TFP will continue supporting
Growth and Jobs Survey identified more trade in emerging Asia. In
these market constraints: Risk sharing and defaults 2018, TFP will increase its total
Co-financing activities are a capacity and continue expanding
• global gap estimated strategic aim of the TFP, since they markets. Technological innovations
at US$1.5 trillion attract private sector financial to improve TFP’s day-to-day
• 40% of the gap is in institutions to developing Asia in operations will support growth.
Asia and the Pacific the effort to reduce gaps, such More diverse and in-depth training
as commercial banks, private for partner banks is in the pipeline,
• 74% of the gap affects SMEs insurance, ECAs and other MDBs. to include environmental and
• a 10% boost in trade finance ADB had a record year for TFP’s social goods screening and risk
would create 1% more jobs risk-sharing efforts in 2017: of US$ management. TFP will pilot the
2.8 billion, most was distributed or onboarding of banks to the Legal
• digitisation is not shared with private insurance. Risk- Entity Identifier (LEI), to help drive
narrowing the gap sharing maximizes TFP’s ability to global adoption of this important
What is more, the sources of support trade capacity in ADB’s tool to improve transparency and
finance for small- to medium-sized 22 countries of operation. There underpin future gains in fintech.
enterprises (SMEs) are not very have been no defaults since the
diverse: some 60% of firms report inception of the programme.
that once a transaction is rejected,
Development impact
the trade fails. Only 20% of rejected
TFP supported over 2,800 SME
transactions are considered
transactions in 2017. More than
unbankable.
850 transactions were between
The report shows the availability of ADB developing member countries.
trade finance for SMEs is affected TFP continues focus on Asia’s
by: more challenging countries, where
market gaps are largest. ADB
• low country and
is now considered an excellent
counterparty ratings
knowledge broker, providing the
• perception of risk market with relevant knowledge
products and services, including:
• high capital costs coupled
with relatively low margins • Trade Finance Register: A tool
created with ICC to provide
• high costs
annual default and loss rates
• risk on compliance with anti- on global trade finance
money laundering and know- transactions, helping regulators
your-client regulations. and financial institutions
understand and calibrate risk
Affordability of trade finance parameters for trade finance.
Pricing pressures remain across the
region, driven by the availability • ADB Trade Finance Gap,
of trade credit to well-established Growth, and Jobs Survey: An
customers. At the same time, SMEs annual publication since 2013
continue to face shortages in that identifies and quantifies
trade finance and high borrowing market gaps for trade
costs, due to the heavier burden finance and the impact on
of compliance and due diligence economic growth and jobs.
processes on the financial sector • knowledge dissemination to
and the difficulty of evaluating inform bankers and insurers
reliable financial data in developing of risks and opportunities in
markets. the TFP countries of operation
through trade finance training
SMEs
and feedback on annual due
TFP-supported SME transactions
diligence to strengthen banks.
rose 77% compared with 2016
to 2,822. To deepen support for
SMEs, ADB launched a supply chain
finance programme. A total of

FINANCE FOR TRADE
African Development Southern Africa. The commodity- and many confirming banks had
led downturn had a knock-on effect adopted a cautious approach and
Bank (AfDB) on Africa’s international trade in were less willing to assume more
Value proposal and product mix 2017. issuing bank risk. As a result, use of
AfDB’s AAA rating and deep AfDB’s guarantee instrument was
knowledge of Africa help banks Major African lowest since the inception of the
mitigate risk and boost access to economies are still TFP in 2013.
trade finance for SMEs.
reeling from low
The AfDB offers the following
products: commodity prices Case study
in 2015 to 2016 US$40 million equity

• Risk Participation Agreement
(RPA): AfDB provides a partial
support to Africa Trade
Coupled with the continued Insurance Agency (ATI)
payment risk guarantee
retreat of many global banks from
(typically 50%) to confirming
the continent due to business,
banks on a portfolio of trade
regulatory and KYC compliance
finance transactions originated
considerations, many local banks
by issuing banks in Africa. The
in Africa suffered from inadequate
tenor of the facility is three years
correspondent banking lines
while underlying guaranteed
and insufficient foreign currency
transactions should have a
liquidity to finance trade.
maximum tenor of two years.
For most of 2017, international
• Trade Finance Line of Credit
confirming banks maintained their
(TFLOC): The Bank offers
conservative approach to trade
this short-term trade loan
finance business development in
mainly to financial institutions
Africa that started in 2015 and 2016.
in Africa for on-lending to
This hurt the supply of trade credit
SMEs and corporates engaged ATI is an investment grade (S&P
lines vital to Africa’s participation in
in international trade, in A rating) regional development
international trade.
sectors such as agriculture finance institution established
and light manufacturing. The This problem was acute in many in 2001 to support investment
maximum facility tenor is large oil export-dependent and trade in its Africa member
three and a half years. economies, such as Nigeria and countries through the provision
Angola, but also in fragile and of political risk and export credit
• Soft Commodity Finance Facility
transition countries generally guarantee insurance.
(SCFF): This liquidity support
characterised by a sector of small
facility is targeted mainly to In 2016 and 2017, AfDB provided
banks that are perceived by
commodity aggregators and US$40 million to ATI as equity
international banks to have high
export marketing agencies that contribution for Côte d’Ivoire,
compliance risks and low economic
purchase or add value to soft Ethiopia, Benin, Zimbabwe and
returns.
commodities such as cocoa, South Sudan.
coffee, tea and cotton for export. Demand was robust from local
This not only boosted ATI’s
The maximum tenor is two years. financial institutions for trade
capacity to underwrite more
finance liquidity support from other
• on a selective basis the Bank business, but for the first time
sources. AfDB alone approved
provides debt to or makes equity boosted access to greater trade
or disbursed more than US$1.0
investment in trade funds. insurance coverage for entities
billion of trade loans to financial
in these countries. It is predicted
Market trends in 2017 institutions, to help cushion the
this equity support will unlock
Although commodity prices, foreign exchange liquidity deficit
more than US$1.0 billion in trade
including oil, stabilised in 2017 and in the trade finance market. Local
in these countries.
even saw a gradual uptick, many issuing banks made many inquiries
major African economies continued on the availability of the Bank’s This demonstrates the powerful
to reel from the price depression trade finance guarantee instrument. leverage and development
of 2015 and 2016. Foreign currency impact of this support. This
However, AfDB could not meet this
reserves remained under stress facility is innovative and unique
demand for two main reasons: only
in many oil export-dependent because it is not a typical
approved confirming banks can
economies, while economic growth intervention instrument in the
request a guarantee under the Risk
was lacklustre in many others, product suite of MDB trade
Participation Agreement (RPA)
especially in Central Africa and finance programmes.
and not the local issuing banks;

Buoyed by strong economic growth in Africa. More than a third of suggests the top 10 customers of
in Ghana, Tanzania, Ethiopia, banks cite these as the primary banks represent close to 60% of
Côte d’Ivoire and Rwanda and constraints to the expansion of their the trade finance portfolio.
macroeconomic adjustment to trade finance activities.
The objective of AfDB’s TFP is to
the realities of depressed export
This is of concern given more increase access to trade finance
commodity prices in others, some
stringent anti-money laundering for SMEs and local corporates in
confidence has returned to the
(AML), know-your-customer (KYC) key sectors such as agriculture
trade finance market. The uptick in
and international regulatory rules and manufacturing. SMEs account
demand for guarantees at the end
and requirements that tend to have for nearly 60% of all transactions
of the year is expected to continue
a more adverse effect on banks in supported. The programme
in 2018.
developing countries. has also lent its support the
Confidence is The severity of these constraints
import and export of essential
commodities and intermediary
returning to fast- tends to vary by region, level of
country fragility and economic
goods vital to the socio-economic
growing African structure. For instance, while
development of the continent. In
sectoral distribution, agriculture,
economies banks in fragile countries and net
forestry and fishing (24%) and
oil-exporting countries view lack
manufacturing (24%) got the most
Achievements in 2017 of adequate foreign exchange
support, followed by energy (9%)
TFP registered the lowest volume liquidity as the biggest constraint,
and construction (8%).
and value ever of guarantees a recent development in net oil-
in 2017, but approval and exporting countries because of the Risk sharing and default
disbursement of trade finance fall in export commodity prices, There were no default or losses in
lines of credit (trade loans) to banks in net oil-importing countries 2017. In 2016 AfDB settled claims
local financial institutions were accustomed to inadequate foreign of about US$850,000 when an
at their highest. In 2017, AfDB exchange rank this constraint as issuing bank in the TFP went into
guaranteed 330 transactions for a less significant. receivership. AfDB has already
total trade value of US$530 million recovered a small portion of the
Affordability of trade finance
and approved and disbursed more settled claim and continues to
AfDB has not done a recent study
than US$1.0 billion of trade loans, pursue recovery of the balance.
on the affordability of trade finance
US$220 million in soft commodity
in Africa. But there is a general Development impact
finance facilities (SCFF) and
perception that letter of credit Since its inception, TFP has
US$18 million in equity support.
confirmation fees levied on local supported 1650 trade transactions
Nigeria, Egypt, Kenya and Guinea
issuing banks in Africa and trade for a value of US$6.6 billion. More
Conakry made up the bulk of the
loans provided by these local banks than 100 financial institutions
guarantees. Regional development
to SMEs and local corporate clients in 30 African countries, most of
finance institutions (the recipients
are among the highest in the world. which are low-income countries or
of the equity support) and regional
banking groups were the main Low country risk and issuing fragile states, have benefited from
beneficiaries of trade loans. bank (obligor) ratings, scarcity of the program, including Guinea,
correspondent bank credit lines, Liberia, The Gambia, Ethiopia, and
Market constraints inadequate foreign exchange Zimbabwe. These are countries to
The AfDB estimates Africa’s trade liquidity in local markets and which international banks provide
finance gap annually around US$90 perceived high risk of SMEs and very limited trade finance credit
billion to US$100 billion. Banks local corporates all contribute to lines due to risk considerations.
cite a lack of sufficient risk capital the high cost of trade finance in By supporting local banks in these
(21%), insufficient limits from Africa. and other countries, AfDB’s TFP
international correspondent banks
has contributed to deepening and
(18%), inadequate foreign exchange SMEs
development of the financial sector
liquidity (17%), and regulatory and Although SMEs account for more
across the continent. The program
compliance restrictions (16%) as than 80% of businesses in Africa,
also promotes financial inclusion by
the biggest constraints to growth on average they represent only
providing a lot of support to SMEs.
of their trade finance activities in 28% of the trade finance portfolios
Africa. of banks. This relatively low share To promote regional integration,
is explained partly by the higher partner banks are encouraged to
Regulatory and compliance
risk perception and cost of doing support as much intra-Africa trade
restrictions and insufficient
business associated with SME as possible. So far, AfDB’s TFP has
credit limits from international
financing. There is also a high supported nearly US$1.4 billion of
correspondent banks pose huge
concentration of trade finance intra-Africa trade. This represents
challenges to trade finance
portfolios. Anecdotal evidence 21% of total trade supported and

FINANCE FOR TRADE
compares favorably to Africa’s There is growing demand European Bank for

overall intra-Africa trade ratio from local issuing banks and
generally estimated at 15%. international confirming banks
Reconstruction and
for single transaction guarantees Development (EBRD)
AfDB is also gradually stepping
(direct guarantees) which provide Value proposal and product mix
up its capacity-building
100% payment risk cover. AfDB The EBRD’s Trade Facilitation
activities for local banks.
is preparing to introduce a new Programme (TFP), part of the
Since 2013, in partnership
guarantee instrument to satisfy EBRD financial institutions
with other international banks
this market need. team, promotes and facilitates
such as Standard Chartered,
Commerzbank and UBAF, AfDB AfDB also plans to expand and international trade to, from, and
has provided training to staff strengthen its capacity-building within Central and Eastern Europe,
from more than 40 local banks in activities to assist local banks fulfill the Commonwealth of Independent
financial crime, risk management, KYC and regulatory compliance States (CIS) and the Southern and
trade finance documentary credit requirements, to possibly avert Eastern Mediterranean (SEMED).
and blockchain technology. further paring back of credit lines The TFP provides guarantees to
from international correspondent international commercial banks
The trade finance banks. (confirming banks) to cover the
political and commercial payment
gap in Africa is AfDB will collaborate with other risk of transactions of issuing
estimated around MDBs and international trade banks in the EBRD’s countries of
organisations such as the WTO and operation.
US$100 billion ICC to focus global attention on
the impact of stringent regulatory The TFP can guarantee any
What is more, AfDB published the trade transaction to, from and
requirements and AML and KYC
second edition of its flagship Trade in the countries of operation.
compliance on banks in developing
Finance in Africa survey in October These instruments issued or
countries.
2017. This report has become a guaranteed by participating banks
valuable reference on the trade may be secured by guarantees
finance market in Africa. issued under the programme:
During the course of the year, the documentary letters of credit
Trade Finance Division organised (L/Cs), trade-related standby L/Cs,
two training courses jointly with deferred payment L/Cs, L/Cs with
UBAF Paris on examination of post-financing, advance payment
documentary credits in trade bonds, payment guarantees, bid
finance, and blockchain and digital and performance bonds, trade-
financial technology for banks. related promissory notes or bills of
Trade finance practitioners from exchange.
more than 25 banks attended. The EBRD also extends short-
AfDB also supported Global Trade term loans to select banks
Review’s trade finance conferences and factoring companies in its
in Nairobi, Cape Town and Cairo countries of operations to fund
attended by more than 400 trade-related advances to local
participants from 50 countries. companies for pre-shipment
finance, post-shipment finance
The outlook for and other financing for foreign
trade finance in trade contracts and domestic and
international factoring.
Africa is positive
in the medium to Market trends
The economies in EBRD countries
long term of operation did not improve
in 2017. Subdued economic
Outlook activity will continue affecting
The outlook for trade finance in international and domestic trade
Africa is positive in the medium to in these countries in 2018. In some
long term. But in the short-term countries, the economic challenges
evolving macroeconomic challenges are combined with the lack of
in some countries and the adverse foreign direct investment and
effects of KYC and regulatory long-term funding. At the same
challenges pose some risk. time, foreign commercial banks are

often reluctant to establish trade for imported machinery and currently covering a portfolio
finance facilities for smaller and equipment, and the devaluation of of selected TFP facilities
regional TFP partner banks, due to local currencies. The programme
• two risk-sharing funds
the high capital requirements and has 95 active issuing banks in EBRD
covering selected areas of
the cost of compliance. As a result, countries of operation and over
the portfolio from grants
TFP continues to play an important 800 confirming banks worldwide.
given by the governments
role, helping smaller and regional
Market constraints of Austria, Germany (KfW),
TFP partner banks grow their trade
Issuing and confirming banks in Norway and Switzerland
finance business to attract trade
countries with high country risk provide partial cover on a first
finance facilities from foreign
access say access to unsecured loss risk basis for transactions
commercial banks.
guarantee lines with long tenors in selected countries
Achievements in 2017 remains limited. In Ukraine, most • at the facility level, AKA Bank
The EBRD in 2017 TFP supported foreign commercial banks are still Germany and the development
1,905 trade finance transactions unwilling to do any unsecured agencies FMO Netherlands and
with a record volume of US$2.3 trade finance activity. The most the OPEC Fund for International
billion, compared with 1,359 active confirming banks have Development (OFID) have taken
transactions totaling US$1.9 billion reduced their country limits an unfunded participation in
in 2015. This increase was mostly and tenor lengths. EBRD’s TFP TFP facilities for selected banks
due to a sustained demand for TFP facilities supports trade flows and
support in the SEMED region. In encourages confirming banks • confirming banks are willing
most other regions, notably CIS and to maintain relationships with at times to take a percent of
the Western Balkans, local banks selected partner banks until their the issuing bank risk, so EBRD
reported less demand for trade commercial trade finance limits are guarantees are issued for less
finance, due to slow economic reinstated to suitable levels. than 100% of the face value of
growth, lack of investment an underlying eligible instrument
Affordability of trade finance
TFP carries out regular pricing Development impact
reviews to reflect country risk The primary objective of the TFP
issues, market pricing conditions, is to help make sure partner banks
partner bank needs, including the have trade finance credit lines
competitive landscape in a country. in place so they can offer trade
finance to their clients, regardless
SMEs of the short-term considerations
SMEs made up an estimated 78% of commercial banks and their risk
on the EBRD TFP’s portfolio in 2017. appetite. An EBRD survey showed
The EBRD also continues to support 73% of partner banks say they need
the development of domestic and continuous TFP support for trade
international factoring activities finance transactions that foreign
undertaken by banks and factoring commercial banks are unable or
companies. This initiative is unwilling to finance. The survey
important to build up supply chain also found 46% of partner banks
Case study
finance options and boost trade (all small- and medium-sized banks)
Floating dock activity in this market segment. need the programme to support
most or all of their trade finance
A letter of credit, issued by the Risk sharing and default transactions.
Bank of Cyprus and confirmed The TFP recorded no defaults in
2017. But risk-sharing opportunities Promoting sustainable trade
by ING Belgium, facilitated
are continually explored to finance means improving know-
construction and delivery of
increase the additionality of how in partner banks and in the
a floating dock from Ukraine
the TFP. Through partnerships region. For new partner banks, the
to Cyprus, helping Ukrainian
with commercial banks, private TFP provides technical assistance
exporters generate more export
insurance underwriters, investment to raise skill levels, tailored to each
revenues and a Cypriot shipyard
funds, governments, export credit partner bank. Once basic skills are
boost its production capacity.
and development agencies, EBRD mastered, training helps develop
A standby letter of credit
can offer tenors and limits not staff to work with more advanced
issued under the EBRD’s Trade
otherwise available: products and sustain their position
Facilitation Programme (TFP)
over time. 87% of the partner banks
covered 70% of the payment • at the framework level, the in the survey asked for courses
risk of Bank of Cyprus to ING TFP is supported by private to keep up to date with industry
Belgium. insurance underwriters developments.

FINANCE FOR TRADE
In May 2010, the TFP launched a IDB Invest (a member Of the goods exported from LAC,
trade finance e-learning programme 39.5% were agriproducts, 22.3%
in cooperation with the ICC and
of the Inter-American were manufactured goods and
Coastline Solutions, to help issuing Development Bank 18.3% processed foods. The main
banks under the TFP achieve best (IDB) Group) destinations of LAC goods were
international practice in trade the US (16.1%), Switzerland (12.5%),
Value proposal and product mix
finance. So far, more than 3,200 Argentina (10%), China (7.8%),
IDB Invest provides support to
specialists from 267 organisations in Germany (4.7%) and Chile (4.4%).
Latin American and Caribbean
35 countries across Eastern Europe,
(LAC) banks to access international Major LAC buyers of imports were
Central Asia and the Southern
trade finance markets by offering Guatemala (29.9%) followed by
and Eastern Mediterranean have
technical assistance, and knowledge Argentina (19%), Ecuador (11.4%),
taken part. In 2017, the programme
and financial products (guarantees Chile (4.9%), Nicaragua (4.3%),
registered 839 new students from
and loans). Honduras (4.3%) and Paraguay
22 countries.
(3.9%). In terms of imports to the
Market trends in 2017
Three-quarters As reported in IDB’s Trade Trend
region, 25% came from Brazil, 21.5%
from the US, 14.3% from China,
of EBRD partner Estimates, Latin America and followed by South Korea (7.2%), and
the Caribbean (2018), after four
banks need trade years of contraction, total exports
Japan (5.6%). The main products
imported were manufactured
finance support for the LAC region in 2017 rose goods (40.2%), vehicles (23.9%),
an estimated 13%. The recovery agricultural products (18.7%),
Outlook was mainly driven by a boost in processed food (7%) and oil and
The EBRD expects smaller banks, commodity prices, especially in gas (3.3%).
banks in early transition countries South American countries. The
and banks in countries with high value of exports grew in all sub- Achievements in 2017
country risk, like Ukraine, will need regions with only four countries IDB Invest issued 99 guarantees
TFP facilities for most or all of their undergoing a contraction. The and disbursed 69 loans under the
trade finance business for the recovery was underpinned by Trade Finance Facilitation Program
foreseeable future. demand in all main trading partners, (TFFP) for US$750.3 million. A total
notably the US and China. The value of 1,800 underlying trade finance
of imports also rose, due to higher transactions were supported
economic growth in some Latin with a face value of US$ 929.8
American economies. million. Mobilized funds through
10 syndicated trade loans reached
Latin American and US$179.5 million. Transactions and
Caribbean exports volumes were much higher in 2017
than the previous year, rising 42.4%
are growing again and 22.9%, up in 2016 compared
with 2015 (direct loans and
Banks in Brazil, Guatemala and
guarantees only).
Argentina accounted for 68.4%
of the total transaction volume in Market constraints
2017 supported by IDB Invest trade The supply of trade finance in LAC is
guarantees and loans. Transactions limited by cost and the complexity
carried out by banks in Ecuador, of compliance to KYC, AML, and
Panama and Honduras represented Basel III regulations, especially in
18% of the volume, followed by countries with low sovereign ratings
banks in Nicaragua, Panama, Chile and in smaller economies, where
and Peru with 10.4%, and the rest many global banks have pulled out.
was driven by banks in El Salvador,
The Caribbean has been especially
Costa Rica, the Dominican Republic
hard hit by this process of de-
and Bolivia. Of total transactions
risking. The region is seen as
by volume, 77.2% were for inter-
less profitable, and compliance
regional trade (LAC trading with
costs outpace revenues, so global
other regions) and 22.8% were intra-
banks have ended many of their
LAC trade transactions.
correspondent banking relations,
Of total LAC exports supported by hurting competition and the
the TFFP, Brazil, Guatemala and availability of trade finance options.
Argentina shipped 77.3%.

The Caribbean has constraining the availability of trade discount facilities focuses on SME
finance sources for small banks in suppliers of the manufacturing and
been hard hit by small economies. TFFP is a risk- telecommunications sectors.
de-risking mitigation instrument, providing
Risk sharing and default
credit guarantees covering
What is more, many global banks commercial and political risks and No defaults were reported since the
are targeting only tier one banks reducing the costs of capital. programme’s inception in 2005.
in higher-rated economies. The
Affordability of trade finance Development impact
limited risk appetite for some
IDB Invest closely monitors The TFFP’s measures its
countries and institutions is
the market prices charged by commitment to development
correspondent banks to regional impact with five indicators:
Case study banks in funded and unfunded • percent of individual trade
Ensuring a steady stream trade finance transactions. In transactions supported
of trade finance countries like Brazil, Peru or for small and vulnerable
Argentina, the overall price level fell economies (64% since the
in 2017, due to high liquidity and programme’s inception)
competition to enter these markets.
In most countries, prices have
been stable, especially in countries
of Central America with some
exceptions, access to trade finance
has become unaffordable due to a
withdrawal of correspondent banks,
which has damped competition and,
due to the frequent requirement of
cash as collateral.
SMEs
IDB Invest is developing new
As de-risking continues to
trade and supply chain finance
restrict the availability of trade
solutions to more directly reach of
finance in the LAC region,
end beneficiaries, including SMEs, Case study
alternative and new sources
beyond direct corporate lending.
of financing, and maintaining
These include transactional
Deepening intra-regional
tenors, are more valuable than
trade finance products, such as integration
ever.
receivables discounting, unfunded
A TFFP syndicated loan was trade receivable commitments, and
the solution for a bank in the structured trade finance products, Boosting regional cooperation
Dominican Republic to access such as pre-export finance, in the LAC region for building
US$130 million for financing a warehouse finance, and inventory infrastructure, and for social
wide portfolio of underlying finance. or environmental projects
trade transactions for importing has an undeniable impact on
The development goal of these
energy, vehicles, leather and development.
products is clear: unleash cash
wheat, among others.
flow for working capital that is To allow an Ecuadorian company
IDB Invest teamed up with a trapped in the supply chain, to deliver its engineering services
well-known global bank that allow companies, especially SMEs, for a road construction in Bolivia,
acted as lead arranger, and 14 to grow and create more jobs and the issuance of a performance
B-lenders from the US, LAC, to improve access to finance along bond by a local bank was
Asia and Europe participated, the whole supply chain, which is required. Since it had no credit
generating eight new especially crucial for SMEs. relationship with banks in Bolivia,
relationships, and allowing the the company requested its bank
IDB Invest in 2017 set up its first
current correspondent banks to in Ecuador to issue a counter-
reverse factoring or accounts
offer extended tenors. Through guarantee to its account. The
payable facilities in Mexico,
this syndicated loan, the TFFP TFFP supported this transaction
through eFactor Diez’s factoring
helped ensure a steady supply of by covering 100% of the risk
platform. Unlike most commercial
trade finance for the Dominican the Bolivian bank assumed by
banks, which prefer to discount
Republic bank and its import and accepting the counter-guarantee
invoices of large suppliers seeking
export clients. of an Ecuadorian Bank.
larger volumes, IDB Invest’s

FINANCE FOR TRADE
• volume of trade transactions Target markets and their end International Finance
processed for underlying small beneficiaries are evolving faster
and medium enterprises (72% than ever, changing the way they
Corporation (IFC)
since the programme’s inception work and the products and services Value proposal and product mix
they need. This is most evident in IFC Global Trade Finance Program
• percentage of intraregional
financial services and technology, (GTFP) is a global trade platform
trade supported (22% since
which are changing exponentially linking emerging market financial
the programme’s inception)
fast. Blockchain is proving a institutions with international
• amount of third-party trade secure, transparent and reliable banks to facilitate trade and
funds mobilized through alternative, and fintechs transacted create opportunities for emerging
syndicated loans and co-loans US$90 billion in the region last year, market corporates and for SMEs to
(almost US$1.5 billion since equivalent to the GDP of Panama. participate in global value chains.
the programme’s inception) The GTFP has supported US$64
To best operate in this fast-paced
billion in trade over the last 13 years.
The TFFP also achieves environment, IDB Invest will stay
development impact through relevant by launching new trade IFC has expanded its emerging
training. Since 2015, TFFP held 11 finance products and services, market trade finance support with
face-to-face training sessions for such as supply chain finance. programmes such as the Global
10 financial institutions in nine LAC Since restructuring in 2015, IDB Trade Liquidity Program (GTLP)
countries. In 2018, IDB Invest will Invest combines the confidence (funded/unfunded portfolio
continue its training programme. and experience of the IDB with program), the Critical Commodities
the flexibility, agility and client- Finance Program (CCFP), the
The TFFP signs bilateral
focus that private-sector clients Global Warehouse Finance Program
agreements with partner financial
seek. IDB Invest will supply a wide (GWFP), the Global Structured
institutions that share the same
range of products tailored to client Trade Finance Program (GTST), the
commitment to improving and
needs and trade and supply chain Working Capital Solutions Program,
expanding trade finance resources
finance solutions, focusing on the and the Global Trade Supplier
in the region. Last year, 12 new
most vulnerable economies, small Finance Program (GTSF). The
financial institutions joined the
countries and islands. collective supported amounts to
TFFP as confirming or participating
US$154 billion in emerging market
banks.
trade since the programme was
To strengthen accountability, the enlarged in 2010.
TFFP measures development
The GTFP mitigates risk by
effectiveness and additionality for
guaranteeing trade-related
each TFFP credit line. IDB Invest
payment of obligations that
gathers data on the trade finance
currently covers 285 enrolled
activities of the banks in the region,
financial institutions in more than
and compares them to different
85 countries. About 53% of the
aspects that affect the market of
customers served by these financial
each country.
institutions in 2017 were SMEs.
Outlook The programme provides up to
IDB’s Trade Trend Estimates, Latin 100% coverage on the country
America and the Caribbean 2018 and commercial risks of individual
gives the following out;ook: the trade-related instruments, including
consolidation of the initial export letters of credit (L/C), standby
recovery in the region depends L/Cs, guarantees, bills of exchange,
on reversing certain factors of and promissory notes issued by
instability in the global economy. emerging market banks. The GTFP
Economic growth of the main expands the amount of trade
buyers of LAC exports, oil and finance available to emerging
commodities supply and demand, market banks and their customers,
and the outcome of the current and often reduces the cost of
negotiations on trade agreements getting credit. To date, over 57,000
as well as regional integration will transactions were guaranteed with
have a tremendous impact on the no losses.
region. IFC maintains relationships with
IDB Invest believes this is a new client banks in Afghanistan,
era for development finance. Benin, Burkina Faso, Democratic

Republic of Congo, Cote d’Ivoire, transaction volume of about
Guinea Conakry, Lebanon, Liberia, US$6.7 billion globally.
Madagascar, Myanmar, Nepal, Case study
The 2017 regional breakdown is as
Papua New Guinea, Sierra Leone, Boosting power supply in
follows:
Togo, Uganda and West Bank and
Bangladesh
Gaza. GTFP continues to grow, REGION TRADE
adding emerging market banks in SUPPORTED
Honduras, Guatemala, El Salvador, (US$MILLION)
Nicaragua, Lebanon, Côte d’Ivoire, East Asia and the 937
Ghana, and Tanzania, among others. Pacific
Europe and Central 1,090
IFC delivers coordinated Asia
programmes that support global Latin America and 1,370
trade by helping stabilize and foster the Caribbean
trade and commodity finance. Middle East and 1,163
IFC focuses on supporting trade, North Africa
given its contribution to economic South Asia 885
growth and stability and the
Sub-Saharan Africa 1,206
availability of goods that countries
Total 6,651
and businesses (including SMEs)
need to grow and, in some cases, to The per capita energy
maintain basic economic function consumption in Bangladesh is
In Europe, with the rebound in
and survive. one of the lowest (371 kWh) in
exports, as well as demand for
For example, IFC supports trade in country coverage in Turkey, GTFP the world. Only about 75% of
capital goods, energy and energy expanded coverage in Turkey and the population has access to
producing equipment, agricultural Greece to assist a need for greater electricity. The country needs
goods and raw materials for support. GTFP supported US$1.1 a yearly growth of 10% in
production. Goods include LED billion in Europe and Central Asia. power generation to sustain its
lights, solar components, medicines, economic growth of around 7%.
In the Middle East, long tenors and More than 70% of the country’s
diagnostic medical equipment
access to reasonably priced finance population live in rural areas
and veterinary medications. In
remain a challenge, especially for where traditional energy sources
these countries, a large part of the
SMEs. In 2017, GTFP supported such as wood are the main
transactions are bundled packages
US$1.2 billion of trade finance in energy sources. Only about 40%
of import finance transactions, or
the region. For example, in Pakistan rural household have access to
L/Cs or standby L/Cs for capital
GTFP provided tenors up to three grid electricity.
goods. The underlying trade flow to
years for select lines, expanding the
SMEs cuts across a wide range of IFC GTFP’s support for import
market’s ability to import capital
sectors, from consumer products, transactions adds 500 MW of
equipment, which is essential
agriculture and forestry to textiles, power for people living in rural
for growth and for upgrading
apparel and leather to healthcare. areas. GTFP supported the
production facilities. This helped
boost productivity of the private import of power generating
sector. equipment in Bangladesh by
IFC’s banking clients in emerging
confirming and discounting
markets most often report
their biggest challenges in 2017 The trade finance L/Cs issued by client banks.
Due to the longer tenor and the
were ambiguous, various and gap is still larger amount, it was difficult
costly compliance; and stress in
correspondent bank relationships widening for IFC’s client banks to have
access to correspondent banks
from transaction refusals, request
In Latin America and the Caribbean, willing to confirm and discount
processing speeds, reduced line
in Brazil demand remains high and documentary L/Cs because
limits, and limited alternatives.
Central America had a greater need of the current de-risking
Banks from a broad range of
for external funds to finance SME environment.
developing countries report cutting
importers and exporters. This is
customers, credit lines, products, The deal supported five
because a relatively higher country
and entire geographies. power plants in Bangladesh,
risk left the sub-region vulnerable
to global de-risking, especially the strengthening the Bangladesh
Achievements in 2017 government’s aim to narrow the
IFC’s trade programmes supported Caribbean. To support continued
growth in the region, IFC provided gap between the supply and
transaction volume of about US$13 demand of electricity.
billion. GTFP supported trade over US$1.4 billion.

FINANCE FOR TRADE
The outlook for 2018 is continued markets have been hurt by the transactions, GTFP executed more
strong demand, with economic closing of correspondent accounts than US$64 billion in trade, which
growth foreseen in Guatemala, by leading international and promoted trade in emerging
Costa Rica, Nicaragua and El regional trade finance banks. markets in 85 countries.
Salvador.
According to IFC’s survey in GTFP’s advisory services help
In sub-Saharan Africa, in 2017 September 2017, De-Risking and improve the capacity of banks in
IFC supported US$1.2 billion, as Other Challenges in the Emerging emerging markets to execute and
upticks in oil prices and increased Market Financial Sector, over a grow trade finance practices, so
correspondent banking pressure quarter of more than 300 banks that when they connect to banks
threatened to widen the estimated in 90 emerging markets reported across borders they do so with a
US$120 billion trade finance gap on correspondent bank relationship high degree of competence.
the continent. losses. At the same time, 72%
In 2017 a training programme
report challenges that reduce
In Asia, GTFP booked over US$1.8 in Nicaragua had participants
their provision of services. This
billion with a focus on SMEs. Most from Nicaragua, Honduras, Peru,
immediately lowers capacity to
of these efforts supported imports Panama and El Salvador. The
import, to support business growth
of capital goods, agricultural and training provided practical and
and to buy goods necessary for
energy products, supporting operational trade finance training,
basic economic function and
economic and business growth and covering marketing and sales of
family survival. Other challenges
stability. trade products, and trade finance
cited include government policies,
strategy. The training in Myanmar
As demand for international political unrest and uncertainty.
gave an overview of standard
banking and trade finance
Affordability of trade finance international practices tailored to
continues to rise in Asia, the
Before the global financial crisis, local regulations. The training also
challenge remains adequate supply
the gap between trade finance covered standard documentary
for businesses and economies to
demand and supply was already products, such as collections,
grow in the short term.
wide, especially in countries getting L/Cs and bank guarantees, as
IFC promotes Climate Smart Trade assistance from the International well as end-to-end supply chain
Initiative (CSTI) on climate change Development Association. This gap financing for commodity flows.
and environmental and social has widened, hampering trade and
sustainability, one of five pillars of Outlook
pushing up prices. Importers in
IFC’s corporate strategy. There is great potential to support
these countries have been severely
growth in trade and trade finance
In 2017, IFC carried out these affected, with less chance to access
across all regions. Near-term
climate smart trade transactions: to trade finance.
challenges include rising demand
• imports of equipment for SMEs for oil, gas, and food. There is
geothermal, hydroelectric GTFP targets SME transactions also a need for infrastructure, so
and solar power projects in El though SME reach data. For a corresponding need to fund
Salvador, Georgia and Honduras example, in the Dominican equipment flow through long tenor
Republic and El Salvador, around transactions.
• guarantees for construction
90% of trade finance transactions There is also potential for new
of solar power farms in
support SMEs in agriculture, oil markets. Trade finance may be
Bangladesh, India and Vietnam
and gas, manufacturing, health and vulnerable to challenges, as seen
• facilitation of pre-export education. in the pressure on correspondent
and import financing for banks and from de-risking, even
trade in ethanol in Brazil and Risk sharing and default
though it remains a low risk asset
recycled steel in Turkey No losses have been reported
class.
under GTFP since its inception in
IFC will boost its support of 2005. New facilities envisioned would
equipment imports to emerging support emerging market trade
markets and expand its outreach Development impact flows of agricultural goods, and
to longer tenor equipment trade GTFP’s emerging market banking critical energy needs in markets
transactions. network provided an estimated where needs are growing to
US$270.0 billion of trade finance meet local demand, production,
Market constraints and helped about 85,000 SMEs. consumption, and for financing.
Correspondent banking pressure is It comprises a network of 285
challenging, especially for smaller emerging market financial
financial institutions in frontier institutions and a network of 1,400
markets or for small economies. correspondent banks including
Many countries in emerging branches. Through 57,000

International current accounts got slightly better challenges. ITFC allocated 35% of
in OIC countries in 2017. its trade finance approvals to least
Islamic Trade Finance developed member countries, and
Corporation (ITFC) The top five OIC exporting member
88% for facilitating trade between
countries, the United Arab Emirates,
Value proposal and product mix OIC member countries.
Malaysia, Saudi Arabia, Indonesia,
ITFC is a leading provider of trade and Turkey, accounted for about Trade finance approvals were up by
solutions to achieve the sustainable two-thirds of intra-OIC exports 10% in 2017 to US$4.9 billion, from
development of Organization in 2017. OIC imports from the rest US$4.4 billion in 2016, reflecting
of Islamic Cooperation (OIC) of the world stabilized around a modest improvement in the
countries. The ITFC provides US$1.6 trillion. Intra-OIC imports economy. Some member countries
direct financing to partner banks, remained modest with less than from sub-Saharan Africa and
institutions, governments and the US$300 billion in 2017, dropping the CIS continued to suffer the
private sector through Sharia- from US$350 billion in 2015. The lingering impact of low commodity
compliant products including pre- top five intra-OIC importing prices from the two previous
export financing. countries, United Arab Emirates, years and from foreign currency
Turkey, Malaysia, Saudi Arabia, and shortages.
Indonesia, made up about 40% of
The economies of OIC member Sovereign exposure continued
all intra-OIC imports in 2017.
countries were affected by falling to comprise most of the
commodity prices in 2017, with Achievements in 2017 portfolio – 80% of the total. ITFC’s
overall GDP growth of 3.2%, slightly Despite a difficult economic sovereign exposure is for large
below the world average of 3.7%. environment in 2017, ITFC did sovereign deals to finance the
Due to weak global demand, falling remarkably well. Although the energy and agriculture sectors,
commodity prices, especially for economies of OIC member mainly extended under strategic
oil, and an appreciating US dollar, countries were expected to grow framework agreements signed with
OIC exports fell by 13.5% in 2016 to 3.9%, many continued to face member countries, in line with their
US$1.4 trillion. Trade balances and national development priorities.
A breakdown of the portfolio by security type is provided in the table.
ITFC TRADE APPROVALS BY SECURITY (US$ MILLION)

security 2016 actual % 2017 actual %
sovereign 3,064 69 3,930 80
bank guarantee 997 22 510 10
unsecured lending - - 159 3
STF 334 8 216 4.5
credit insurance 50 1 85 1.5
total 4,445 4,900
A breakdown of the trade finance approvals by region is provided in the table below.
ITFC TRADE APPROVALS BY REGION (US$ MILLION)

region 2016 actual % 2017 actual %
Asia/CIS 2,166 48 2,402 49%
MENA 1,552 35 1,673 34%
sub-Saharan Africa 760 17 826 17%
total approvals 4,478 100 4,900 100
total disbursements 4,801 3,435

In 2017, ITFC focused on with the AfDB. Trade finance and Development Bank Group (IsDB)
partnerships with Africa. Some of trade development and a pipeline and development partners like
these partnerships were with the of joint interventions were part of the Asian Development Bank
African Development Bank (AfDB) the agreement. (ADB) and the Inter-American
and the African Export Import Bank Development Bank (IaDB), to
ITFC took advantage of the
(Afreximbank). The IDB Group advance the agenda of international
signature of partnership
renewed its partnership agreement trade. This was done through the
agreements between the Islamic

FINANCE FOR TRADE
inclusion of trade finance and trade agreement to cut oil production. Considering the role of the
development in the agreements, For oil importers, economic growth private sector, especially SMEs in
along with initiatives and joint work is projected to increase, supported development, ITFC provided two-
plans. by strengthening domestic demand step Murabaha financing (2SMF)
and cyclical recovery of the global and lines of financing to banks
ITFC also strengthened its
economy. totaling US$664 million.
partnership with the International
Finance Corporation (IFC), signing Affordability of trade finance Risk sharing and default
a partnership letter of intent last ITFC financing is competitive: 100% ITFC and the African Export-Import
July, to work together on climate of operations are funded and no Bank (Afreximbank) signed a
finance, sustainable trade, global guaranties are issued. Moody’s US$100 million and a EUR50 million
value chains (GVCs), energy assigned to ITFC a long-term issuer agreement to facilitate and finance
security and agriculture sector rating of A1 with a stable outlook. exports among African countries
export. and between Africa and the rest
The Islamic Development Bank
ITFC continued its shift from a of the world. The facilities support
has a AAA rating from the three
transaction-based model of trade procurement from suppliers
main ratings agencies. These
support to a programme-based in member and non-member
ratings will enable ITFC to get
approach, where trade finance countries, including for local
better access to borrowing in
operations are integrated with purchase, and to promote trade
external markets at attractive rates.
trade development and capacity across Africa.
Moody’s also assigned a short-term
building to boost development issuer rating of P-1, which reflects This partnership is part of
impact. ITFC’s strong capital position, ITFC’s commitment to support
Examples include: moderate leveraging, prudent development of exports from
treasury investment and liquidity African member countries as an
• the Indonesian Coffee Export management. important lever for sustainable
Development programme growth, job creation and poverty
SMEs reduction. It will finance African
• an initiative to support cotton
Assisting international trade so OIC member countries under
producers in West Africa
OIC countries develop sustainably the Arab-Africa Trade Bridges
• the Arab Africa Trade Bridges is only possible if SMEs are programme, a regional initiative for
(AATB) programme included. ITFC developed a the challenges faced in promoting
global programme to tackle the trade between the two regions
• the Aid for Trade Initiative
challenges facing SMEs in global and for supporting South-South
for Arab States (AfTIAS)
value chains. cooperation.
ITFC focused on sectors with a
The programme is designed around
large impact on economic and Development impact
three interventions:
social development, notably energy The trade and business
and agriculture. ITFC extended • access to finance development department (T&BD)
trade financing facilities to support was created in Q3 2017 under the
• capacity building
these sectors in member countries, new 10-year strategy for ITFC to
reaching US$3.79 billion for • technical assistance become the leading provider of
energy and US$439.0 million for trade solutions for OIC member
ITFC launched its first pilot
agriculture. countries.
programme for Saudi Arabia and a
Market constraints second will focus on west African ITFC advances policies to
Despite the strengthening global SMEs. advocate for the adoption and
recovery, OIC member countries implementation of policy options
ITFC provides trade solutions to
are still adjusting to lower oil prices, to achieve the Sustainable
SMEs through partnerships with
commodity process fluctuations Development Goals (SDGs) and
local financial institutions by
and unrest and conflict, which more inclusive international trade.
extending lines of financing. To
are denting foreign currency Climate change and climate action
reach a larger number of SMEs
reserves. The supply of financing, was an important policy theme
in OIC countries, ITFC provides
including trade finance, Is being in 2017. ITFC is developing its
Murabaha financing to local
hurt. For oil-exporting countries, understanding to leverage on
financial institutions which, in
spillovers from low oil prices and its expertise in order to design
turn, extend the financing to SMEs
lower tax collection continue to climate trade finance solutions
and private sector clients. This
weigh on non-oil growth, while and integrated programs, and to
improves access to finance and
overall growth is held down by tap climate funds for mobilizing
also introduces Islamic Finance
the Organization of the Petroleum resources. After publishing a brief
instruments to partner banks.
Exporting Countries (OPEC) led report on international trade and

climate change for the COP22, ITFC Outlook
organized a panel discussion on ITFC will expand its trade finance
trade, transport and climate change activities and rapidly expand
on the sidelines of the COP23. private sector and SMEs financing.
Resources will be mobilized,
The first Islamic- and policy engagement and
finance compatible, partnerships will be reinforced in
cooperation with development
sovereign fund partners, including the private
launches in 2018 sector, NGOs and academia, to
unleash the international trade
potential of OIC countries.
ITFC will soon launch fund

Case study management activities, and will
Supporting cotton structure and manage by Q3
farmers in Burkina Faso 2018 the first Islamic finance-
compatible sovereign energy fund
between US$300 million and
US$500 million. The fund is part of
ITFC’s diversification strategy and
innovation focus.
At the same time, the fund will

contribute to energy security in OIC
countries, and generate income for
ITFC from a new business line.
By offering an uncorrelated and

diversified portfolio of trade
finance solutions in a single
offering, ITFC will strengthen
and enlarge its base of investors.
This is aligned with efforts to
Cotton is a major export and
diversify partnerships and comes
an important source of revenue
at a crucial time to reinvigorate
for Burkina Faso, which gives
economic growth. It will especially
work to millions of people in
help importing member countries
rural areas. The cotton industry
reduce their vulnerability to energy
also has indirect impacts on
market fluctuations.
transport, warehousing and
banking, and contributes to
overall economic development
and poverty reduction.
ITFC is a strategic partner for

developing Burkina Faso’s cotton
sector. To extend direct support
to farmers, ITFC purchased seed
cotton from local farmers and
cooperatives, which is delivered
to Sofitex facilities for processing
into cotton fiber. ITFC raised
EUR107 million, well above
the initial objective of EUR100
million to fund the project.
The structure of the operation

is unique, combining sovereign
backing with an enhanced
security package to create a self-
liquidating financing structure.

The time is ripe in this period of economic growth and stability to revisit the way trade
finance is regulated. What is more, a new way forward on regulations could free up
massive capital to fund the UN’s Sustainable Development Goals.
Anti-money laundering rules have been a big impediment to securing trade finance,
banks say. But blockchain and Robotic Process Automation may be of help.
Basel IV rules on bank capital requirements go into effect in 2022, but the effects will
be felt much sooner. Will the new rules get rid of the obstacles that have damped the
market for trade finance?
Billion-dollar fines and tightening regulations have done little to stop bad corporate
behaviour. It’s time to test a new way.
Another area in need of a reboot is risk-based compliance, so that efforts are more
effectively mobilized to monitor and research only the tiny number of cases that merit
closer scrutiny.
Setting the scene/ Risk-based regulatory compliance/

Sir Michael Rake, CEO, Worldpay Back to basics for better surveillance
It is important that the public and interested As regulations get ever stricter, increasing
parties understand that a more proportional time and resources required, organisations
regulatory regime for trade finance will boost can get more efficient in pinpointing which
economic growth and not backtrack on the cases to pursue, by following these actions.
hard-won safeguards put in place to prevent Pages 119-122
another financial crisis. Pages 111-112
Basel IV/
Making trade finance attractive Will new rules help or harm the market
investments/What it would take for trade finance?
Remedies exist to make trade finance really A decade since the onset of the global
catch on as an investment, put forth here. financial crisis, when overleveraged banks
Pages 113-116 tipped the world into the deepest recession
since the Great Depression, the Basel
Trends in trade finance regulation/ Committee on Banking Supervision (BCBS),
Dealing better with anti-money an international regulatory forum that
laundering includes central bank supervisors, has revised
There are three new methods to more standards to the Basel III accord on bank
efficiently deal with all the new regulations capital requirements. Pages 123-124
on money laundering, terrorist financing and
sanctions. Pages 117-118 Regulating business/
The two pillars of ethical regulation
Two of the world’s experts on ethical
regulation spell out the state of play in
curbing corporate malfeasance and offer a
new way forward. Pages 125-126

Setting the scene/A more proportional regulatory regime on trade finance will lift economic growth
Setting the scene/

A more proportional regulatory regime on
trade finance will lift economic growth
By Sir Michael Rake
Sir Michael Rake is chairman of Worldpay – a global leader in payments processing technology – former
deputy chairman of Barclays and chairman of ICC United Kingdom.
It is important that the public and interested parties

understand that a more proportional regulatory regime for
trade finance will boost economic growth and not
backtrack on the hard-won safeguards put in
place to prevent another financial crisis.
It is now beyond doubt that we face way as higher-risk investment Regulatory oversight is critical
some real and significant challenges finance. What is more, trade finance to the overall health and stability
to free trade from populism and provides valuable short-term of the financial system, but it has
nationalism. Recent developments working capital for SMEs and plays become clear that some of the
in relation to Brexit and the Trump a critical role in financing export requirements have albeit indirectly
administration, including the intent opportunities. hampered access to finance for
to introduce tariffs on a unilateral businesses.
During this decade, ICC’s Trade
basis underline the threat to the
Finance Survey and Trade Register Policies to address access to trade
global economy at a time when
have also provided evidence of the finance are urgent. Relaxing the
underlying growth is beginning
scale of the finance gap and shown rules on low-risk trade finance
to pick up across the world. So
how trade finance is low risk. will not shift the focus away from
we need to do everything we can
financial stability.
now to stimulate growth. In need As a result, the world’s
of special attention are SMEs in policymakers are in a much better Diverging priorities
emerging markets, which were hit position to make informed decisions Part of the problem is that national
hard by the global credit crunch, on setting out a more proportionate and international policy priorities on
and are still hamstrung in their need regulatory regime for trade finance. trade finance do not add up. While
for trade finance. politicians still make SMEs and
The result of the regulatory regime
Trade finance is an obvious place is that fewer SMEs and mid-size trade a top priority, regulators still
for policymakers to start, by finding businesses are able to access trade favour stability over growth.
a way to bridge the US$1.5 trillion finance to grow their businesses, It is understandable that the
gap in trade finance estimated by and fewer banks in emerging public has little desire to ease
the Asian Development Bank, as a markets are able to access capital regulation on banks. But the public
way to finance the United Nations markets, such as London. and policymakers need a more
2030 Sustainable Development sophisticated understanding of the
Policies to drive economic growth
Goals (SDGs). finance companies need, and the
are needed, since global GDP is still
low compared to before the global companies that benefit.
Bridging the financial crisis started in 2008. There are two reasons why trade
trade finance gap finance should be regulated
would help fund Global GDP is still differently than other forms of
realisation of below levels the finance.
the Sustainable Great Recession The first has already been touched
on, but it bears repeating trade
Development Goals A more proportionate regulatory finance is low risk.
regime would help achieve this goal
It has never made sense to regulate Second, in a globalised economy,
by releasing day-to-day working
low-risk trade finance the same supply chains are integrated and
capital for trading companies.
span multiple markets, across

the developed and emerging
regions. Trade is a driver of global
prosperity, and trade finance a
building block to keeping trade
flowing.
To arrive at a more proportionate

regulatory regime for trade finance,
a wider audience must be better
educated and informed: that
includes entrepreneurs, SMEs,
politicians and regulators. Many
of these groups share common
interests, such as raising access to
finance. But they are not aware how
related issues interconnect.
For example, UN policymakers

understand financial regulations
are a barrier to unlocking the US$8
trillion of long-term investment
finance needed to deliver the SDGs.
But the role of short-term trade

finance in unleashing sustainable
growth, another UN development
goal, is less well understood.
Above all, SMEs need short-term

working capital to grow and expand
in emerging markets, which creates
much-needed jobs in many parts of
US$8
the world, and helps make the case trillion
for free trade. Regulations
are a barrier to
These are all UN priorities. unlocking the
US$8 trillion to
More dialogue, wider debate fund the SDGs
To better support SME growth,
the UN, the G20, the IMF and the
World Bank, and governments
and regulators must engage more
deeply with each other on trade
finance. We should also support
the UN’s review of the trade finance
gap as instigated by the ICC.
Rightly or wrongly, the public,

especially in G7 countries, mostly
see banks and businesses as the
reason standards of living have
stagnated over the past 10 years.
This perception needs to be
challenged, and a wider debate
launched so they public is better
informed of the root causes and
solutions.
US$1.5
trillion
gap between
demand and supply
of trade finance

Making trade finance attractive investments/What it would take
Making trade finance attractive

investments/What it would take
By Krishnan Ramadurai and Surath Sengupta
Krishnan Ramadurai is Global Head of Capital Management, Global Trade and Receivables
Finance and Surath Sengupta is Managing Director & Global Head – Portfolio Management
& Asset Distribution, Trade Finance, HSBC.
Remedies exist to make trade finance really catch

on as an investment, put forth here.

The presentation of this issue with balances. These balances need model is observable in the market,
both a demand-side and a supply- to earn a return – and investors’ certain leading banks have little
side perspective, combined with preference is for short-tenor assets. incentive to sell these assets if the
consideration of the cyclical nature Note, despite recent changes to US overall relationship is profitable. As a
of the trade finance origination-and tax policies, this still remains valid result, there is a short supply of high
distribution model, presents this as these cash surpluses need to be quality trade finance assets available
topic in a uniquely holistic manner. reinvested. for capital market investors.
Continuing compliance and capital
Global capital Fixed rate vs. floating rate assets adequacy pressures coupled with
There is currently a preponderance
stocks are at of fixed rate bonds in the market,
a systemic conservatism about
cross-border risk may contribute to
pre-crisis levels compared to floating rate assets. a shift in this dynamic and a related
While the numbers are hard to come increase in available assets world-
by, the imbalance in the supply of wide.
Demand side factors floating rate assets creates an issue,
Global capital stocks and investable particularly against the backdrop of There is a short
assets have regained levels of a rising interest rate environment.
pre-crisis « normal » and by some As the interest rate cycle continues supply of high
measures, have exceeded those to turn upwards, investors in quality trade
levels, creating a scenario where fixed rate assets are likely to earn
investment managers seek attractive commensurately less attractive
finance assets
options across the spectrum of returns. As such, a rebalancing of available for capital
investment options. This includes portfolios is required to minimise
alternatives designed to preserve these adverse outcomes, increasing
market investors
capital whilst generating some level demand for floating rate assets. Transparency from a product and
of adequate return: a combination
pricing perspective
of attributes most common to bond
Supply side factors
and fixed income alternatives. It is difficult to disentangle trade
While opinions differ among finance from a product and pricing
Low to Negative yields providers of trade finance and perspective due to its integrated
Over recent years, due to low, and at supply chain finance, there is some nature in a company’s working
times negative yields on government degree of consensus around the capital cycle. A classic illustration
and corporate bonds, there has existence of a material level of global is the fact that a supply chain
been an increase in demand from unmet demand for trade finance. loan on due date will be made
investors for alternative investment This gap, estimated at US$1.6 trillion good by debiting the overdraft
opportunities where they can assure annually by the Asian Development account, which is also used to fund
capital security and make a positive Bank, is one that the banking sector other working capital expenses.
return. is unlikely to be able to meet, given Structured limits gives customers
credit appetite risk and balance the flexibility they want from an
Diminishing supply of short-term sheet constraints. Certain market operational and pricing perspective
investment grade debt instruments leaders acknowledge the need to and banks flexibility in terms of
With interest rates at record lows, attract non-bank capital to the structuring, pricing and credit risk
many high quality or investment financing of international commerce, appetite. Capital market investors
grade borrowers have taken the including through the distribution need absolute transparency from
opportunity to extend their debt of trade finance assets which allows a product and pricing perspective.
– locking in low interest rates for banks to underwrite additional As such, investor due diligence is
the longest tenor they can achieve. business. required to overcome these issues
As a result, the short-term debt
– a costly proposition for capital
market is currently characterised Trade finance assets are primarily
market investors.
by many sub-investment grade a buy-to-hold asset class
corporates and high yield borrowers. Banks are major players in this Lack of standardisation
Consequently, there is unsatisfied market, financing approximately of trade products
demand for investment grade non- 35-40% of global merchandise Given the broad suite of trade and
financial assets. trade. Given a bank’s traditional working capital products made
focus on relationship banking and available by banks and the bespoke
Corporate cash balances the financing of the working capital nature of trade transactions,
at record highs cycle of corporates, banks have it is difficult to achieve full
Taxation policies combined with a commonly chosen to keep these standardisation of products, and
reluctance to invest surplus cash assets on their balance sheets. associated legal documentation.
have led to a build-up of cash While an “originate–and distribute” Capital market investors need

Making trade finance attractive investments/What it would take
standard definitions and legal number of transactions may be sold tool. Unless the return challenges
documents as it aids transparency down to insurance companies with presented by these transactions
and helps with the assessment of specialist knowledge of this asset can be addressed, there is limited
underlying risks. class. The focus of the markets is potential to use securitisation as a
on traditional trade products like funding tool.
The collapse of Asset- confirmation and discounting of
backed commercial paper export letters of credit (L/C) and Creating/Promoting Trade
Before the credit crisis, receivables the syndication of guarantees which
in particular non-recourse Finance as an Asset Class
are sold down by the originating
receivables were often placed as bank to other banks on a transaction Expand sell down of trade
collateral with conduits, which in- by transaction basis. Standard portfolios to supply chain
turn issued short-term commercial documentation in the form of a and receivable finance
paper to capital market investors. Master Risk Participation Agreement The first issue identified is the need
The commercial paper issued was (MRPA) are used as the legal to find a capital markets solution
often backed by back-stop liquidity documentation to facilitate these for receivable finance and supply
lines from commercial banks sell-downs. chain loans. This can be expanded
which enabled the Asset Backed to include export/import loans.
Commercial Paper (ABCP) to get a The market has evolved primarily
Our analysis indicates that while
AAA rating. This market has never based on correspondent banking
bilateral sell downs work well for
recovered and these conduits no networks and the relationships
L/Cs and Guarantees, in the trade
longer receive the AAA rating established by this network. Risk
loans space there is limited potential
which was crucial to their success. transfer transactions, where the
for bilateral deals, given the unique
The revival of the ABCP market, original exposure is retained by
characteristics of these transactions.
albeit with lower external ratings, the originating bank and only the
is a potential option for receivable risk is transferred, is a feature of
A capital markets
finance and in particular non- this market. It should be noted,
recourse receivables. however, that the market for risk solution is needed
transfer transactions is limited by for suply chain
legacy booking systems; and there
The current state of play loans
is potential to grow this market in its
for trade finance assets current form if banks can address
The market for the sale of trade legacy system issues. Portfolio based approach
finance assets has long been The trade loans space lends itself
a business with relationships, Private capital markets to a portfolio based approach.
preferred partners, manual This is a niche market, where a However, to make a portfolio based
intervention and little in the way of select few asset managers have built approach work, the following issues
automation, underlying algorithmic the skill set and made the requisite need to be addressed:
logic or even consistent practice investments in resources and
systems required to invest in trade Standardisation of product
(contracting, standards and
assets. As the risk-return pay-off definitions, structures and legal
otherwise) across jurisdictions. The
for these asset managers has been documentation – This is required to
distribution of assets has largely
excellent and there is a competitive provide certainty and transparency
been inter-bank, partly due to the
advantage in keeping this a private to investors and to facilitate the
limited awareness in capital markets,
market as public markets would benchmarking of returns against
about trade finance and the assets
need greater transparency, which in other investable asset classes.
that result from trade financing
return can erode returns currently A good starting point for this is
activity.
being achieved. There is very little the work done by the International
Much of the activity in trade asset incentive for existing players to Chamber of Commerce (ICC) and
distribution today focuses on develop public capital markets given the Bankers Association for Finance
traditional trade finance: long- the direct impact it would have on and Trade (BAFT) in defining the
established instruments such as their returns. various trade products. From a legal
Documentary Letters of Credit and documentation perspective the
others, largely ignoring the now Securitisation of trade assets MRPA structure described above
fast-growing Supply Chain Finance To date there have been a select is a good starting point. The use
space, which addresses the 80% few transactions where the major of standard legal documentation
or so of trade conducted on open driver has been the optimisation of for loans as defined by the Loan
account terms. capital. The underlying economics Management Association (LMA) is
of using securitisation as an another useful reference point.
A bilateral bank-to-bank market alternative funding instrument
Banks are the predominant players is challenging, hence the limited Transparency – As capital markets
in this market, though a small use of securitisation as a funding investors require transparency and

the ability to benchmark prices, a invoices and to issue a single prices which are transparent to all
potential solution is to put large capital market instrument with an market players. These market places
value syndicated transactions on ISIN number which would help in or exchanges would also create
Bloomberg so that transaction provide transparency and aid the a vibrant secondary market for
pricing and structures are available development of a secondary market these transactions and provide the
to capital markets investors. for these instruments. An alternative liquidity needed by capital market
We see this as a key issue in the would be the use of lending investors.
development of trade assets certificates as a means for banks to
as an investable asset class. sell down these portfolios to other Implications for making
Large syndicated banks, insurance companies and
asset managers.
trade finance an
transactions investable asset class
Regulatory and compliance
could be put on requirements on prospective Implications for the
banking industry
Bloomberg investors may reduce uptake of
For trade finance assets to become
trade finance assets, or, solutions
involving regulatory advocacy may a more investable asset class, banks
Prior to the peak of the global
assist – for example, reducing the will need to originate assets on a
financial crisis around 2009, trade
standard of due diligence required continuous basis, to ensure that
finance was largely an esoteric and
of investors, given that a significant there is a consistent pipeline to
unknown branch of finance, with
amount of due diligence would have satisfy demand for these assets
practitioners maintain a degree of
been completed by banks prior to from capital markets investors.
opacity around the business that
financing trade activity. Origination will also need to
is no longer sustainable given the
ensure that assets originated are
attention around this business
Other potential methods by which a transferable to capital markets thus
over the last decade. Public and
capital market for trade assets could structuring, legal documentation
international policy, academic and
be developed are outlined below: and pricing will need to change.
international institution research,
the attraction of FinTechs to this
business, all combine to drive
Revival of the Asset Backed Banks will need to
Commercial Paper (ABCP) market
greater visibility, understanding The revival of the ABCP structure, originate assets on
and transparency around trade
financing.
with an external rating, which now a continuous basis
tends to be capped at the level of
the counterparty’s external rating, From an accounting perspective,
Credit process – To make the
is an alternative way of funding a banks may need to adopt a mark-
portfolio approach a success, in
portfolio of loans. The issuing bank to-market approach which will bring
particular for supply chain and
could use the external rating as a additional volatility to the profit and
receivable finance loans, the need
means of optimising its capital even loss accounts of banks. The flipside
for an external rating is critical, as
if it chose to fund the portfolio from is increased price discovery which
capital market investors need a
internal sources of funding. is currently opaque because of the
benchmark to compare risk returns
buy-to-hold approach.
for trade assets with other asset Risk transfer of portfolios
classes to justify internal mandates Transferring risk to external Mindset and cultural changes within
and investment decisions. investors while retaining the original banks is also required as the current
Operational process – Both supply exposures on the originating banks set of banks are more familiar with
chain and receivable finance books is an alternative way of selling bilateral transaction based transfer
sell downs will be operationally down exposures. Currently, bank of assets between each other.
intensive. Individual invoice values legacy systems are the major road
Implications for non-bank players
can vary from small to large and block to implementing this solution.
The development of trade as an
programs can involve thousands Addressing legacy IT issues and the
investable asset class is a boon for
of separate invoices. Investors may legal documentation required to
these players as it is not currently a
deem it necessary to undertake transfer risk is a potential solution.
mainstream asset class. The market
detailed analysis of SCF program
Market place and exchanges for trade finance assets is a niche
participants, including potentially
As trade related capital market market, dominated by a select few
hundreds of suppliers or more who
transactions and structures evolve players. As this market develops
could be invited to participate in a
and achieve scale we expect the and more players enter the market
global payables finance program.
final stage of this evolution to be capacity is likely to increase and
A potential solution to address
a market place or exchange where there is potential for the current
the issue of invoice volumes is to
trade based assets can be placed unmet demand for trade finance to
examine the use of a custodian
by sellers for buyers to purchase at be met.
to dematerialise the underlying

Trends in trade finance regulation/Dealing better with anti-money laundering
Trends in trade finance regulation/

Dealing better with anti-money
laundering
By Ivan Zasarsky
Ivan Zasarsky is a partner, Asia Pacific Financial Crime Strategy & Response Center at Deloitte.
There are three new methods to more

efficiently deal with all the new regulations
on money laundering, terrorist financing and
sanctions.
When ancient mariners sailed the of old, but modern trade faces a ways to slip through the net of new
seas in search of trade, they only grave threat - from criminals’ intent rules.
had to worry about storms, scurvy on moving illicit funds around the
Trade-based financial crime is one
and the figment of sea monsters. globe.
of the new techniques criminals
Fast forward to 2018, and the list of To deal with the risks of money are using. By harnessing the
a mariner’s worries is much longer, laundering, terrorist financing and mechanisms of trade finance,
and lengthening every year. violating international sanctions, and exploiting the blind spots in
a life raft of legislation has been international cargo freight, criminals
Twenty-first century container ships
created. But with each barrier are able to work around the law.
may be sturdier than the galleys
erected, criminals are inventing new

Criminals are using and exporters, that connect the If technology offers a more
continent’s young economies lucrative platform to provide trade
trade finance with foreign markets, struggle to finance, then more institutions will
mechanisms and navigate a banking system that enter the market. More competition
understandably hesitates to finance and improved know-how will only
exploiting the blind their operations. benefit consumers.
spots in cargo Faced with these challenges, To realise the possibilities of this
freight less-established traders may technology, banks and regulators,
seek alternative ways to transfer shipping agents, ports and customs,
Typically, criminals collude with funds. The rise of bitcoin, a and many other links in the chain of
overseas partners to under- or digital currency, and other international trade must cooperate
overcharge on invoices, transferring cryptocurrencies poses risks. more.
value by selling goods on the But with limited options, traders
But as things stand, banks are
cheap, or getting extra funds under may be tempted to bypass the
focused on knowing their own
the guise of legitimate transactions. banking system and transact
customers, with only limited
online, with no questions asked.
It may be fairly straightforward knowledge of counterparties and
While cryptocurrencies create new
for a customs agent to check the onward customers. Likewise, more
opportunities, the emerging world
weight or number of items in a accountability must rest with other
of virtual fiat money brings new
shipment,but gauging the true members of the industry that
challenges for governments and
value can be more complex. This is support international trade such as
regulators.
really hard when abstract concepts shipping agents, insurers etc, all of
or judgments are involved. The
price of iron ore is easy to find
Inexperienced which have visibility into the various
parties and can detect suspicious
online, but how much is a custom- traders may be matter earlier than banks.
designed engineering component
worth, or a work of art? Of 220
tempted to bypass Banks have limited
jurisdictions worldwide, only 35 the banking system knowledge of
have specific anti money laundering
(AML) rules for art and antiquities. As standards are raised ever counterparts and
higher for AML and Counter
Terrorist Financing (CTF) events onward customers
In the eye of the storm
on information security, few would
So it comes as no surprise that But with shared KYC registries,
relish transactions moving out of
some banks are having second collaborative pricing data, and a
their enforceable jurisdiction to
thoughts about engaging in clearer picture of cargo movements
roam freely in the dark web.
trade finance. More than 90% of and whereabouts, including ships
respondents to the 2016 ICC Global transferring goods at sea, the
Two solutions at hand industry can take advantage of new
Trade and Finance Survey identified
AML regulation as a “significant In the right hands blockchain technologies and help make sure
impediment” to trade finance, up technologies and cryptocurrency trade thrives and grows in the 21st
from 81% the year before. offer solutions to some of these century and beyond.
threats to trade finance. More
Given the toll criminal networks and traceable funds would boost Shared KYC
global terrorism are taking on the
global economy, few would argue
transparency in the banking system
and improve KYC operations in
registries, and
against tighter AML regulation. But financial institutions. collaborative
the recent spate of legislation – not
only AML, but also new sanctions Evolving technology could aid pricing data are a
against Russia and North Korea – data analytics, giving more power way forward
are a huge burden on the financial to regulators and banks to trace
institutions that keep world trade proceeds and evaluate trade in In coming years, the threat from
flowing. goods and services. trade-based, financial crime may
well become as far-fetched as the
Restricting trade finance really Compliance teams can research
spectre of sea monsters.
damages SMEs and legitimate freight arrangements, customers
businesses in developing countries. and correspondent banks. But it
takes time and manpower. Robotic
For example, Africa has the world’s Process Automation (RPA) uses
fastest growing population, but software to replicate human tasks,
its newly established importers at a fraction of the time and cost.

Risk-based regulatory compliance/Back to basics for better surveillance
Risk-based regulatory
compliance/Back to basics for
better surveillance
By Eric A Sohn
Eric A Sohn is Director of Business Product at Dow Jones Risk & Compliance in the US.
As regulations get ever stricter, increasing

time and resources required, organisations
can get more efficient in pinpointing which
cases to pursue, by following these actions.

Practitioners in the field take the expectations of regulators on the still used to identify indicators of
risk-based approach to regulatory standard of care to be applied to all potential crime, as for higher-risk
compliance as an article of faith. aspects of compliance operations. candidates. These can also alert a
Talked about at events and printed firm to the prospect that the initial
in journals, the industry focuses A European bank evaluation of the client may be
mostly on strategies that can
be folded into a firm’s policies,
found matches suspect.
procedures and operations. were only one- A different

Lost in the details of how to do tenth of one standard of care
this is why do it at all. Why take percent of reviews should be applied
a risk-based approach, anyway?
Re-examining this question can to those with
Raising the stakes
lead to changes in what elements limited means and
are made risk-based, and how a Regulators in general are raising
risk-based approach is carried out. the bar higher and higher on opportunity
The alternative is a one-size-fits-all compliance: they are asking for
It’s important to recognize the
approach, assuming all customers, more industries to be covered, more
focus on “financial crimes of
business lines, and firms have the types of transactions subjected to
significance”. While morally
same level of risk. review and reporting, and the scope
satisfying to try to identify petty
of review process to be expanded.
crimes, this attention is misguided.
Better alignment For example, a bank was fined for Operationally, as the sums diminish
The reason seems simple: not screening the SWIFT addresses in unusual activity, it is more likely
Compliance professionals take a of sanctioned banks, even though the activity is merely unusual, not
risk-based approach to identify the names were screened. In criminal.
suspicious parties and behaviour another case, a bank was fined
according to perceived risk. Like for not using the date of birth in New gauge
all operational overhead costs, the client database to identify two
Take, for example, cash deposits
the cost of compliance operations drug traffickers. Broadly speaking,
made by someone with a second
is always subject to optimization larger institutions must meet higher
job, or by someone building a
exercises. standards, then those standards are
business while still employed. More
pushed down-market.
But the percent of relationships and important from a regulatory point
business transactions, the cases Can a better conclusion be of view, potential laundering of
truly needing more research and drawn from analyzing the cost of petty crime does not have the same
ongoing monitoring, is relatively compliance? adverse societal impact as a large
minuscule. money laundering scheme.
Reframing risk
The percent of For other legal violations, financial
Money laundering is not a crime
because it is wrong or bad. It
cases needing criminals need three things: means, is criminal because it weakens
more scrutiny is motive and opportunity. While a the balance sheets of financial
motive for monetary gain could be institutions, crowds out legitimate
tiny given to any counterparty, the same businesses from unfair competition,
cannot be said for opportunity or and limits the ability of government
For example, several years ago a
means. Those of limited means or to guide the direction of the
large European bank found even
limited opportunity are statistically national economy.
with exact matching technology
less likely to be involved in major
for sanctions screening, matches
financial crimes.
to the listed party made up about
one-tenth of one percent of those A risk-based approach can be
reviewed. In general, these are 10% redefined, then, so those less likely
or less of records screened. The to be involved in financial crime
ratio was five times worse when are treated with a standard of care
fuzzy matching was applied. suited to their lower chances, when
conducting initial and ongoing due
That makes finding efficiencies
diligence and in monitoring their
necessary, especially in a
activity.
competitive environment with
margins under constant pressure. Due diligence and monitoring
Not to mention that regulatory requirements for lower-risk
requirements are rising, as are the relationships, though reduced, are

Risk-based regulatory compliance/Back to basics for better surveillance
Five actions to assess and their business relationship have This correction to what is normal
any sway? may mean transaction patterns
low risk profiles
that seemed unusual under the old
How do you identify the lower 94% of bribes model no longer do, or vice versa.
means and opportunity that
should be subjected to different were made to Better operational efficiency, and
less chance a potential financial
treatment? executives of state- crime evades detection are the
Verify that a person or organization owned companies, result of these two updates.
is who they say they are according
to: heads of state, This translates into a risk-based
approach in two ways. First, the
• their identity, using official government time between KYC data refreshes
documents, such as passports or ministers, and can be varied based on the
articles of incorporation perceived risk. Second, since the
defense officials, number and nature of transaction
• their financial assets, using
bank references, regulatory
OECD Foreign monitoring alerts can be varied
based on the relationship risk,
filings of income and balance Bribery report that implies an event-based re-
sheet information, a pay stub, or
individual tax returns
shows evaluation of KYC assumptions
is similarly risk-based, as it will
• the nature of their employment or It is important to remember happen less often for lower-risk
business, through documentary that 94% of all bribes, were accounts.
evidence, such as employment made to executives of state-
verification letters and pay owned companies, heads of Know Your
state, government ministers and
statements for individuals,
defense officials, according to The
Customer data
company marketing materials,
counterparty references from Foreign Bribery Report (2014) by refreshes are key
customers and business partners, the Organization for Economic
Cooperation and Development What is more, these two modes of
and income statements
(OECD). KYC update can be intertwined. For
• their history of financial crime, example, if a low-risk account can
by reading news articles of past This might permit a firm not to be identified as generating low-risk
involvement treat other classes of officials in behavior, as opposed to expected
the highest risk category. At the medium-risk behavior, then that
• the likelihood of committing same time, a former spouse or child transaction profile could be used to
bribery or corruption, by attending college out of town could lengthen the scheduled KYC data
identifying politically-exposed merit less initial oversight. refresh cycle.
people and companies owned or
controlled by the government “Initially” is the operative word with
all things risk-based, to be fair… 50 shades of risk
While not getting information
This analysis makes two major
requested from a counterparty
Updates add value assumptions about regulatory
should always be treated as a
While transaction monitoring requirements: less significant, or
red flag, it may not always be
generates alerts which may trigger petty crimes are not the focus of
a fatal omission in a risk-based
a re-evaluation of Know Your regulatory expectations, and PEPs
programme. For example, a lack
Customer (KYC) data from a client, are not inherently high-risk. Even
of personal identification in some
the data require periodic refreshing, if these assumptions are false, a
countries is not uncommon. It can
even in the absence of unusual risk-based approach can be used
be largely ignored If financial assets
behavior. on which the statistical basis these
are nominal.
suggestions were founded. Simply
The art of the risk-based approach These updates serve two purposes. put, one need not apply the same
is evident, even at this stage. Is First, the nature of someone’s standards of care to all elements of
there a limit to how far back to circumstances may have changed focus.
search for negative news? Should enough to warrant re-classification
in a risk-based programme. A The level of matching required for
the lookback period depend on the
different level of transaction petty crimes could be stricter than
total amount expected to transit
monitoring would be applied, even for major crimes. To be worthy
the account in a typical month?
if no red flags crop up. Second, of review, crimes below a certain
Are all Politically Exposed Persons
updated KYC information can lead amount of revenue would have to
(PEPs), and their relatives and close
to a new understanding of what is happen in the past three years to be
associates automatically high-risk?
and is not unusual activity. worthy of review, while those above
Or does the nature of their position
that threshold might require a five-

or seven-year lookback. A spelling
mismatch for petty crime might be
disqualifying, while a mismatch on
the city of residence would trigger
a flag on the perpetrator of a major
fraud.
A higher standard would be

required for the names of PEPs
from job categories or relationship
types less likely to be involved in
financial crimes to be considered
matches. For example, a person
whose name and country matched
that of a defense official might be
stopped for review, even with major
misspellings, while the ex-spouse of
a provincial legislator who has been
out of office for two years might
require matches of an exact name
plus a date of birth.
Regulator buy-in
A risk-based approach to KYC and
anti-money laundering (AML) is
only as good as the ability to get
the agreement of the regulator. It
is a bit like looking at the approach
from both ends of a telescope. At
one end, it looks like a company is
trying to do less, making them look
small and petty. Through the other
end, the AML programme appears
impressive, focusing the most effort
on the instances most likely to be
criminal and have an impact on the
local and national economy.
One’s choice of lens may determine

whether or not the regulator asks
why the programme was designed
that way, what is not being properly
surveilled – and who is responsible.

Basel IV/Will new rules help or harm the market for trade finance?
Basel IV/Will new rules help or harm the

market for trade finance?
By Félix Prévost and Krishnan Ramadurai
Félix Prévost is Senior Manager and Krishnan Ramadurai is Global Head, Capital Management, Global Trade and Receivables
Finance, HSBC.
A decade since the onset of the global financial crisis, when

overleveraged banks tipped the world into the deepest
recession since the Great Depression, the Basel Committee on
Banking Supervision (BCBS), an international regulatory forum
that includes central bank supervisors, has revised standards to
the Basel III accord on bank capital requirements.
These standards are a powerful in two ways: a more detailed Basel IV reduces the scope of
policy tool for reining in leveraged differentiation between risk factors advanced IRB models to small- and
lending. Referred to as Basel IV for unrated exposures to banks and medium-sized corporates, defined
by market participants, the new corporates, and for rated exposures as consolidated revenues under
requirements, published last in jurisdictions with credit ratings. EUR500 million. This introduces a
December, go into effect in January Banks must also carry out more higher probability-of-default (PD)
2022. Analysts and investors expect due diligence on all counterparties, floor of 0.05%, up from 0.03%.
banks to report the impact from including on credit ratings agencies. The senior unsecured Foundation
these new rules much sooner. loss-given-default (LGD) has been
The credit conversion factors (CCF)
lowered to 40% from 45%.
The reform aims to reduce for off-balance sheet commitments
variations in risk-weighted assets
(RWA) between the standardised
will still reflect the low claim rates
identified by the ICC Trade Register.
Banks may no
(SA) and internal ratings-based Banks modelling the CCF for longer offer
(IRB) approaches that banks use. off-balance sheet commitments,
higher credit limits
such as letters of credit, may not
The wider ambition is twofold: to
continue this practice, which could outright
reduce banks’ incentive to minimise
increase the exposure-at-default
risk weights by aggressively The reform recognises the short-
(EAD) of trade finance products
modelling under advanced IRB, term, self-liquidating nature of
under IRB.
and to level the playing field across many trade finance assets by
banks and jurisdictions. What is more, by introducing providing a maturity (M) floor
a 10% conversion factor for waiver to some trade finance
Trade finance will be affected by
unconditionally cancellable products: M is floored at one-
these new requirements in four
commitments, up from a 0% floor, year in RWA calculations for most
areas:
banks may no longer be willing to lending products. A lower M on
Credit RWAs provide higher credit limits outright, trade finance products, such as
The new SA aims to be more because of the additional costs to letters of credit, (which are typically
granular and risk-sensitive them for unused credit limits. valid for about 120 days), results in

a lower RWA compared to a similar A new capital output floor with the leverage ratio as the
maturity short-term non-trade means bank calculations of RWAs binding constraint must reconcile
finance loan. generated by internal models this with the regulatory ratios and
cannot in aggregate fall below the stress test.
Good news for 72.5% of the risk-weighted assets
The process is even more complex
computed by the standardised
trade finance, good for big groups with subsidiaries.
approaches. This limits the benefit
news for SMEs a bank can gain from using internal
Global banks will need to report
capital ratios under the IRB
Basel IV’s regulatory capital models to 27.5%.
approach and the SA, since the
treatment for Credit RWAs should
This will likely increase capital SA will set the capital output floor,
boost the provision of trade finance
requirements, and reduce the while simultaneously meeting the
to SMEs. It should also help narrow
incentive to develop internal norms set out by the annual stress
the US$1.5 trillion gap in unmet
models. The floor will be phased in tests and meeting the non-risk-
trade finance demand by SMEs.
over five years starting at 50% in based leverage ratio.
The reforms also simplify the 2022.
It is worth noting trade finance
Operational Risk Framework
maintains its off-balance sheet
by replacing the four current Ripple effects conversion factor advantage in the
approaches with a single
While it is hard to gauge the impact leverage ratio calculation, which
standardised approach where the
of Basel IV on industry and banks, for this measure at least makes it
capital charge is a function of bank
it is clear banks must make hard relatively more attractive compared
size and operational losses incurred
decisions since the reforms are to other lending.
over the last ten years.
challenging, complex, and at times
The off-balance sheet treatment
contradictory.
Up to the task under SA, IRB and leverage ratio,
The capital output floor could and the maturity floor waiver under
The new approach should better
reduce the incentive to move IRB should encourage banks to
reflect the scale of misconduct,
portfolios to the IRB approach. The continue underwriting trade finance
mis-selling, money laundering and
floor effectively reduces the benefit products. This is especially true for
sanctions penalties after the global
of the IRB approach. SMEs, which remain in the scope of
financial crisis.
advanced IRB modelling.
Combined with SA changes and the
The impact will be greatest on
limitations and constraints on IRB By levelling the playing field
large banks with a record of
options and approaches, IRB use and rebalancing the relative
past operational failures. It will
may fall. Lenders in locations where value of assets, Basel IV could
reward smaller and well-governed
regulators have restrained the use boost competition from smaller
competitors, by giving them an
of IRB models, often in emerging domestic banks, non-bank lenders
opportunity to compete on capital
markets, will also benefit. and investors, through direct
and pricing.
competition with banks in the
Which of these ratios or norms is
primary market or by participation
New Backstops the binding constraint for banks? In
in distributed assets from banks
A leverage ratio buffer will give the US, it is clear the annual stress
that lend to finance trade.
more control over the buildup tests determine the dividends
of excessive leverage by Global paid and the level of capital ratio To close the SME trade finance
Systematically Important Banks maintained. As a result, logic gap, traders and bankers alike must
(G-SIB). dictates the binding constraint will embrace a more diverse lending
be the stress test combined with base.
The ratio is a simple measure that the leverage ratio – which is a prime
compares a bank’s capital measure driver for the regulators to take
against its exposure measure un- prompt corrective action (PCA)
weighted by risk. It is a backstop to rather than the regulatory reported
the absolute leverage a bank can ratios.
achieve. The new ratio will be set
at 50% of each G-SIB’s risk-based Basel IV will boost
capital buffer.
competition
Impact of the change opens up the
trade finance market for smaller Will banks run their businesses and
players to capture market share pricing models using the stress
from large, established banks. test as the reference point, or the
reported regulatory ratios? Banks

Regulating business/The two pillars of ethical regulation
Regulating business/
The two pillars of ethical regulation
By Christopher Hodges and Ruth Steinholtz
Christopher Hodges is Professor of Justice Systems at Oxford University. Ruth Steinholtz is Founder
and Principal of AretéWork LLP. They co-authored Ethical Business Practice and Regulation.
A Behavioural and Values-Based Approach to Compliance and Enforcement (2017).
Two of the world’s experts on ethical regulation

spell out the state of play in curbing corporate
malfeasance and offer a new way forward.
In Transforming Culture in Financial that people do not need, or installing regulators do not act with ethical
Services (2018), the UK’s Financial devices to beat emissions tests? culture top of mind.
Conduct Authority (FCA) said: Should executives be paying a fair
Building an effective ethical culture
“Despite record fines, increasing level of tax in countries where their
is not just about corporate social
investigations and an expanding earnings are high, or pay themselves
responsibility (CSR), governance or
compliance industry, misconduct huge salaries compared with
sustainability. It is about tempering
remains. Why? What have we not average staff pay or local wages?
the single-minded pursuit of
learned?”
So how does one stop these same shareholder value with achieving
The Authority found that even with mistakes from happening, over and the objectives of all stakeholders.
severe penalties for drunk driving, over again? It is about fairness and doing the
11% of road deaths in the UK are still right thing, which allows employees
caused by drinking. A single thread to sleep soundly and people with
integrity with the willingness to work
Despite decades of massive fines All the major reports on root causes
for an organisation.
and damages, especially in the of the 2008 financial crisis found
US, the number of corporate one key to successful regulatory
scandals is not shrinking: the compliance: corporate culture. How Firms of endearment
Enron and WorldCom accounting an organisation makes decisions and A growing body of evidence shows
scandals, expenses fudging by carries out its activities affects what companies that adopt a holistically
parliamentarians, the Madoff it achieves. ethical approach are very successful
investment scandal, the BAE and sustainable. No surprises here.
But unless dysfunctional corporate
Systems and Siemens bribery Staff devote all their energy to their
culture is dealt with, the seeds have
scandals, the foreign bribery work and perform well. Suppliers are
already been planted for the next
scandales of Rolls Royce and motivated to support and are willing
crisis.
Brazilian construction company to put in a good word.
Odebrecht, doping by cyclists and
Russian athletes, corruption of
Execs say their An analysis of 57 US and 15 non-US
FIFA officials, sexual exploitation, corporate culture is companies found those that adopt
a comprehensive approach to meet
Facebook’s use of data, and cricket inadequate the needs of all stakeholders had
ball tampering. The list goes on.
far better financial results than
Although corporate culture and
Clearly imposing penalties has failed the S&P average over 15 years,
integrity are widely talked about,
to change behaviour. which appeared in the book, Firms
several polls show that while senior
of Endearment: How world-class
Should companies be selling leaders believe culture is important,
companies profit from passion and
mortgages that people will never be many do not believe theirs is
purpose.
able to repay, or insurance products adequate. What is more, many

An earnings spinner culture of ethics. In short, ethics is universal open or no blame culture),
everyone’s responsibility. water pricing in Scotland, food
More recently, a McKinsey study
safety in the UK, and workplace
in 2017 of 600 firms showed those In Ethical Business Practice, a
safety in Canada and Finland.
that focused on the long term had company identifies core ethical
an average profit 81% higher than values and other elements of a In the next stage, a regulator needs
companies chasing short-term cultural and leadership framework, to adopt a comprehensive ethical
profit. and values-oriented ethics and approach, as a new string to its
compliance. bow. Opportunities abound in data
Whole Foods pioneered conscious
protection compliance, Internet
capitalism, which emphasises the Firms measure and manage their
self-regulation, and combining
integration and interdependence internal culture with tools that range
regulation with anti-money
of stakeholders. Whole Foods and from the simple to the sophisticated,
laundering and cybersecurity in
its stakeholders have grown and such as the Barrett Cultural Values
financial services. The Australian
prospered, even if the market has Assessment.
Securities and Investments
not always rewarded the company,
Ethical Business Practice builds Commission recently signaled
perhaps due to its long-term focus.
up cultural capital and consistent its intention to move to EBR for
TSB Bank was established in 2013 evidence of trustworthiness. These banking regulation.
to reset the relationship between both lower transaction costs and
Adopting EBP and EBR can
banks and society by putting risk, creating more value. Ethical
transform business and regulation.
customers and communities before Business Regulation is an example
But these two horses of business
short-term profit. It scrapped all of the value of cultural capital,
and regulation need to drink from
sales targets, sales-linked rewards where building up trust can be a
the same trough. In so doing, they
and access to comparative sales mitigating factor in the event of
can achieve outstanding compliance
data at branch and area director misconduct.
and stellar economic growth.
level. Instead, TSB rewards staff
purely on customer service, and A new model of regulation
assesses performance by skills,
Businesses demonstrating
attitudes and behaviours instead of
trustworthiness deserve a
outputs. The Bank says this is why
supportive response from
customers are opening 1,000 new
regulators, not a punitive response.
accounts every day.
This can take the form of an
A growing body engaged relationship, in which
activities and risks are regularly
of evidence shows discussed proactively. This is Ethical Business Practice

ethical behaviour is what is meant by Ethical Business
A holistic commitment to
Regulation (EBR).
profitable an aligned culture
EBP and EBR improve compliance
Employees can:
for many reasons, notably the ability
It’s the barrel, not to identify problems early and sort • do the right thing, based on
the apples inside them out. There is no need for huge ethical values
What is more, the relationship fines or class actions, based on
• recognise ethical dilemma and
between ethical culture and conduct outdated theories that these deter
skillfully resolve it
rests on a solid base of science. wrongdoing.
The idea of the bad apple has been • be open and honest: speak up
Stiff sanctions and intense scrutiny
replaced by the apple barrel in a and learn from mistakes
can then be reserved for real
range of recently-published books: criminals. The way to shape future
The Honest Truth about Dishonesty,
Ethical Business
behaviour of businesses and people
Thinking Fast and Slow, and Nudge. Regulation
is to encourage and support, not
beat them up. Improvement should A relationship between a
These ideas can be applied to
be nurtured, people trying to do the business and a regulator
compliance and regulation. We
define Ethical Business Practice right thing should not be alienated. • the business produces
(EBP) as a holistic approach The actions of regulators can evidence of its ongoing
to doing the right thing in all support or inadvertently repress commitment to Ethical
companies’ activities. good behaviour. Business Practice
This definition goes beyond a code Examples of EBP and EBR exist in • the regulator recognises and
of ethics or a Board directive to many sectors, such as international encourages that commitment
be ethical, to create an ingrained civil aviation safety (based on a

TRANSFORMATION
Setting the scene/Daniel Schmand, Chair, ICC Banking Commission
A call to action for collaboration addressed at the trade finance industry, as it sits on the cusp
of a digital revolution.
The growth experienced and further anticipated by banks in terms of value of trade finance
and supply chain finance processed needs to be sustainable.
Page 129-130
The future of digital Sustainability

Making the move to digital has never been One of the major risks to growth in global
more pressing, as the industry looks for ways trade are sustainability risks to global supply
to become more efficient and productive chains. Voluntary sustainability standards are
amid pressure on margins from competition an important part of the solution. Regulations
and compliance. The trade finance industry and shifts in demands for transactions linked
faces special challenges, from finding a way to environmental impacts are propelling
for many different actors in the supply chain banks to provide sustainable trade finance.
to coordinate, to the blizzard of paperwork
involved in trade finance transactions. But Voluntary Sustainability Standards/
there is a way forward. Schemes are spreading
Consumers from Brazil to Belgium are
Digital trade/ getting savvier about the carbon footprint of
Plotting the path to transformation the products they buy, a big reason for the
Early indications show the trade finance growth in voluntary sustainability standards.
industry could make big savings in time and But several problems need to be solved on
staffing today, through methods such as the use of VSS’s. Page 147-150
Robotic Process Automation, and blockchain
is fast moving into a commercially viable ICC’s work on sustainable trade finance/
proposition. But the hurdles to an all-digital Blueprint in the making
strategy may be more political than technical. A new ICC working group on sustainable
Page 131-138 finance started in 2016 is looking into
standards, a due diligence tool, and ways to
Digitising trade/ spread best practices. Page 151-154
Kicking it into higher gear
What needs to change in practice, rule-
making, advocacy and financial inclusion to
usher in the digital era. Page 139-142
Conflicts in laws/
Time to get your clauses in order
Why banks need to take a hard look at their
policies and procedures – and exposure and
tread carefully in using electronic contracts.
Page 143-144
Digital forfaiting/Making distributed

ledger tech a reality
To make DLT happen requires several
legal issues to be sorted, while blockchain
promissory notes could attract new investors.
Page 145-146

TRANSFORMATION
Setting the scene/Making trade finance digitalisation happen
Setting the scene/Making trade finance

digitalisation happen
By Daniel Schmand
Daniel Schmand, Chairman of the ICC Banking Commission and Global Head of Trade
Finance, Deutsche Bank
While protectionism and talk of trade wars have

dominated the headlines, this Global Survey
reveals that the outlook for global trade is actually
positive. Almost two-thirds of respondents do
note an increase in the value of traditional
trade finance provided in 2017, while
nearly half have seen a jump in supply
chain finance.
However, this growth needs their own legislation – and parties, paper and electronic bills of lading?
to be sustainable. This means ranging from exporters, importers How can blockchain effectively
digitalising trade finance and and banks, to insurance companies comply with data protection
logistics documentation and and port authorities. regulation? These are just some of
automating handling from farm to the issues being examined by legal
It is the role of the ICC Banking
fork, from factory to warehouse. experts.
Commission, therefore, to support
While we all know the benefits:
the creation an ecosystem based While the trade finance industry
increased transparency, time
on the necessary standards so that is making good progress on
and cost savings; reduced errors;
emerging technologies can connect coming together to tackle these
and reduced compliance and
all its stakeholders. challenges, not much can happen
operational risk; it seems to very
without the support of regulators
difficult to make digitalisation
Set the standards and governments. It is here that
business as usual.
the ICC Banking Commission has
I’m pleased to say this work
We have seen major breakthroughs a significant role to play, not only
has begun in earnest, with the
in the form of various blockchain from an advocacy perspective,
formation of our Digitalisation
pilots, but we can, and should, but also in terms of engaging
Working Group in June 2017.
expect more. Only 12% of in constructive dialogue with
respondents to the Survey A key focus will be the adaptation these bodies and organisations
have successfully implemented of rules and regulations to such as the WTO and UN. It is
technology and are witnessing the ensure they are “e-compliant” no coincidence that national
benefits. Almost half are struggling – allowing banks to accept data digital strategies in a number of
to do so – whether this be due rather than documents. We will Asian economies have coincided
to legacy systems, regulatory also look into the development with them taking the lead in
restrictions or cultural barriers. of minimum standards for the technological innovation.
Worryingly, 37% don’t have digital connectivity of service
We sit on the cusp of a digital
technology implementation on the providers – particularly across
revolution. The payments industry
agenda at all. legal, liability, information security
has taken the leap in response
and technology firms. We believe
Individual digitalisation initiatives to platform competition from
that this will not only help foster
rather than those linking up providers such as WeChat and
innovation, but also drive uptake.
with the wider industry, create Amazon – just look at the progress
problematic digital “islands”. This Of course, new operating models made by the SWIFT global
has its roots in the multi-faceted based on new technology also payments initiative. Trade finance
nature of trade transactions, which bring legal challenges. How do the cannot afford to be left behind.
span multiple countries – each with rights of third parties differ under

37%
don’t have implementation
on the agenda
12%
of survey respondents
successfully implemented
digital solutions for trade
finance due diligence

TRANSFORMATION
Digital trade/Plotting the path to transformation
Digital trade/
Plotting the path to
transformation
By Sukand Ramachandran, Jarryd Porter, Ravi Hanspal, Teck Hsien Ho, Ankit Mathur
Sukand Ramachandran is a Partner and Managing Director of Boston Consulting Group,
Jarryd Porter is a Project Leader at BCG, Ravi Hanspal is a Project Leader at BCG, Teck
Hsien Ho is a Consultant at BCG, Ankit Mathur is Lead Knowledge Analyst at BCG.
Early indications show the trade finance

industry could make big savings in time and
staffing today, through methods such as
Robotic Process Automation, and blockchain
is quickly turning into a commercially viable
proposition. But the hurdles to an all-
digital strategy may be more political than
technical.
Short-term gains Saving time and staffing trade bank to automate trade
finance processes such as L/C
Banks and industry bodies are One example is Intelligent OCR,
issuance, which reduced previously
evolving the digital backbone of which scans non-standardised
end-to-end human involvement to
trade finance operations. In the documents, recognises the text,
final validation and authorisation,
short term, efforts are mostly and digitises the contents into data
cutting processing times by 60%,
focused on boosting efficiency and automatically without human input.
and reducing full-time employee
lowering costs. Industry veterans Automated template solutions
headcount needed for data entry
in conversations with BCG said – document templates with
and scrutiny by 70%.
methods such as Robotic Process integrated automation features that
Automation (RPA) and machine increase the efficiency of document
learning (ML) have matured enough creation – will also be used more in
to encourage the digitisation trade finance documentation.
of trade finance processes,
and support the automation of Recent examples of RPA and
compliance processes, such as ML include the partnership of a
sanctions screening. technology startup and an Asian

Robotic Process Automation, Machine Learning in Trade Finance Processes
As-is Process To-be Process

Trade portal
Customer Customer submits

BRANCH/
Scan documents
Service documents
Officer Basic manual scrutiny ML based doc
via checklist Automated identification
Automated
Scan documents
completeness scrutiny
Compliance
Complete scrutiny
done manually
3 40+ Compliance ML based doc
Trade Finance Center
rules checked identification

mins per case
ML based data
Automated extraction
Data Entry
Manual data entry done Automated
(TFC)
in workflow system
5 Up to 30+ fields entered
scrutiny checks
mins per case
Verification of Validation &

Authorisation Validate ML output
data entry Authorisation
4 Final authorisation
5
Final authorisation
mins per case SWIFT message sent

SWIFT message sent
for remittance mins per case
A project these projects were mostly cross-sell using front-end platforms,

pilots or proofs-of-concept. but the main benefit is cost savings.
automating L/Cs Recent initiatives signal potential
slashed processing commercial maturity. Banks
Industry 4.0 will unleash
aim to focus more on building
times by 60% flexibility into their infrastructure reams of data
as new technologies become more The current trade model is a
Longer-term, digital could
commercially viable. complex flow of goods, information,
transform the way trade finance
documentation, and capital among
is conducted. One possible
a wide range of players. So it is
application is distributed ledger Saving billions not surprising that many links in
technologies, or blockchain, Both short-term efforts and long- the process could be disrupted by
to replace a lot of paper term innovations are necessary to technology. The table on page 134
documentation and manual unlock huge cost savings for trade shows potential digital disruptors.
reconciliation, tracking, and banks. BCG estimates an integrated
verification of transactions. digital solution incorporating One major potential disruptor is
This switch would boost trade intelligent automation, collaborative the emergence of Industry 4.0,
transparency, prevent duplication digitisation, and future technology especially the increased adoption
and excess documentation, and solutions would save global trade of the Internet of Things (“IoT”)
boost compliance. banks between US$2.5 billion and and the integration of 3D printing
US$6.0 billion in cost savings on a in global supply chains. 3D-printing
Digital ledger cost base of US$12 billion to US$16 may upend physical supply chains
and reduce the role of trade finance
tech would boost billion.
in global supply chains and trade
transparency Boosting revenue
transactions.
Recently major trade banks A full digital transformation may

have launched or plan to launch also boost revenues 10%. For
blockchain-based technologies example, digitising operations may
for commercial use. In the past, allow banks to more effectively

TRANSFORMATION
Trade and trade finance actors
IMPORTER
16
DOCUMENT
COURIER
4 14 15
IMPORTER’S IMPORT IMPORT
BANK TERMINAL CUSTOMS
17 6 13 3
CORRESPONDENT INTERBANK SHIPPER INVOICING
BANK MESSAGING PLATFORM
5 10 11
EXPORTER’S EXPORT EXPORT
BANK TERMINAL CUSTOMS
9 12
PRE-SHIPMENT DOCUMENT
INSPECTOR COURIER
7 8
FREIGHT INSURER Corporate
FORWARDER
Banks
Governing bodies
Facilitators
2
Physical shipment
of goods
EXPORTER
Transfer of
instructions and docs
Risk mitigation
and compliance
Financing
Payment
Source: BCG

Digital disruptors to trade and trade finance
Smart contracts automating Intelligent OCR

payment release removing paper
from large
parts of trade
operations.
Multi-bank IMPORTER
platforms and bank
agnostic messaging
systems disrupting
importer/bank
relationships.
eDocs and multi-

bank connectivity
Advances in AI and DOCUMENT replacing paper.
COURIER
advanced analytics
accelerating
automation.
Single window
solutions easing
Customs.
IMPORTER’S IMPORT IMPORT IoT and GPS

BANK TERMINAL CUSTOMS can geo-locate
containers.
Cloud-based
invoicing solutions
CORRESPONDENT INTERBANK SHIPPER INVOICING simplifying
BANK MESSAGING PLATFORM cross-border
billing, increasing
availability of
transactional data.
Single window
solutions are
EXPORTER’S EXPORT EXPORT aggregating
Blockchain-type BANK TERMINAL CUSTOMS interactions
technologies between business
disrupting and government.
correspondent
banking.
Electronic
bills of lading
PRE-SHIPMENT DOCUMENT replacing paper.
Blockchain-type INSPECTOR COURIER
technologies
can help build
trust between
trading entities.
FREIGHT INSURER
FORWARDER
Sanctions filtering
and big data
can significantly E-Commerce
ease compliance opening markets to
activities. smaller players.
Physical shipment
of goods
EXPORTER
Transfer of
instructions and docs
Risk mitigation
and compliance
Financing
Payment
Sources: Press reports, BCG

TRANSFORMATION
Players create about 5,000 data field interactions
Date of order
IMPORTER Date of invoice
Date of shipment
Date of delivery
Date of settlement
Date of Bill of Lading/Airway Bill
Date of Issue-letter of Credit
EXPORTER Latest Date of Shipment under L/C
Expiry Date of L/C
LETTER OF Location for L/C Presentment
CREDIT Period for Presentation of docs
L/C Sequence of Total Ref No.
Sending/Applicant Bank
Receiving/Advising Bank
IMPORTER’S Importer/Buyer/L/C Applicant
BANK
BILL OF Exporter/Seller/L/C Beneficiary
EXCHANGE Address of Importer/Buyer
Address of Exporter/Seller
Currency Code & Amount of L/C
% L/C Amount Tolerance
EXPORTER’S Maximum Credit Amount
BANK Additional Amounts Covered
Bank where credit is available
Tenor of Drafts (from B/L date)
Drawee of Drafts (Bank)
COMMERCIAL Documents Required
INVOICES
Additional Conditions of L/C
FREIGHT
FORWARDER Charges w Currency Code & Amount
L/C Confirmation Instructions
Reimbursing/Correspondent Bk
Instructions to Paying/Accepting Bk
ORDER Invoice amount
FORM Invoice number
INSURER Account information
Letter of Credit number
Form of Documentary Credit
Applicable L/C Rules (e.g. UCP)
Reference to Pre-Advise L/C
Commercial Invoices number
Insurance policy number
PRE-SHIPMENT INSURANCE
INSPECTOR Bill of Lading number
POLICY
Purchase order number
Certificate of Origin reference number
SKU number
Design name
Description of goods and/or services
EXPORT Quantity
CUSTOMS Colour
BILLS OF Unit price
LADING Gross weight
Net weight
Measurement
DOCUMENT Number of packages
COURIER Packing type
Means of transport and route
CERTIFICATE Carrier/Shipper
OF ORIGIN
Ocean vessel
Voyage number
Port of loading/Airport of Departure
SHIPPER Port of discharge/Airport of Destination
Origin criterion
Final destination
Partial Shipment Allowed/Not Allowed
WEIGHT/ Tarns Shipment Allowed/Not Allowed
PACKING LIST
Insurance provider
IMPORT Coverages
CUSTOMS Credit Limit
Effective date
PAYMENT Expiration date
CONFIRMATION
L/C Authorization
Export Rep to Sign BOE
Export Rep to Sign Commercial Invoice
DOCUMENT Validated Certificate of Insurance
COURIER Validate Cert of Origin
Agent Initial on BOL
CORRESPONDENT KYC/AML/
BANK SANCTIONS Source: BCG Analysis

3D printing may product: the end-to-end journey Scrutinizing these interactions
involves more than 20 players and reveals only about 60 to 80
reduce the role of more than 100 pages across 10 to unique data fields, such as dates,
trade finance in 20 documents, many duplicated amounts, and reference numbers.
and transmitted multiple times. Collaboration and coordination
supply chains The interactions between these among all parties could reduce
players and documents produce data intensity to just these unique
IoT could advance better end-to-
about 5,000 data field interactions, data fields, boosting the efficiency
end tracking of trade transactions
created from the interactions and ease of processing trade
in real time, and reduce the risk
between two or more players. transactions. This data convergence
of delivery or payment. It could
would also make compliance and
also encourage the shift to open
regulatory processes more accurate
account transactions, as lower Only 1% adds value
and efficient.
delivery risk mitigates the need Most of these interactions are
for documentary trade for risk duplicates of existing data and are
management. IoT use will increase not scrutinised or are sometimes Blockchain as
the volume of data. If not handled ignored. The share of this potential solution
well, this rise in data intensity may redundant data rises during the Blockchain-enabled smart
hamper the digitisation process. trade journey. In total only about contracts are a possible solution:
1% of data field interactions add authorised trade parties can create
All trade parties, from importers
value. Globally this is an estimated and securely access data fields
and exporters to banks, customs
200 billion data field interactions digitally. These contracts could
and logistics institutions, interact
supporting trade finance. Industry automate shipment tracking,
and collectively create a huge
4.0 and increased IoT use will payments execution, and delivery
amount of data during the
exponentially pile on to this volume verification. The blockchain
transaction, which varies by
of data. backbone could also increase
product. L/Cs are the most complex
Approximately 200 billion data field interactions support the Trade Finance ecosystem
-99%
4,000
-6,000 ~200B
Data field ‘interactions’ per transaction
Each trade
Total data field ‘interactions’ p.a. only accounts
for 60-80
unique data
fields
400
-600 ~20B
80-120 ~4B
60-80 ~2.8B
35-45 ~1.8B
10-20 ~600M
Documents Pages Page including Data fields Data field Unique

copies/ interactions data fields
duplicates
Source: BCG

TRANSFORMATION
Trade information fabric results in 60 to 80 unique data fields
EXPORTER OTHER SHIPPER BANKS IMPORTER
ORDER
FORM
BILL OF
EXCHANGE
LETTER OF
CREDIT
WEIGHT/
PACKING LIST
INSURANCE
POLICY
CERTIFICATE
OF ORIGIN
COMMERCIAL
INVOICES
BILLS OF
LADING
KYC/AML/
SANCTIONS
PAYMENT
CONFIRMATION
DATA FIELD INTERACTIONS

Create value-adding data Duplicate existing data Other
Source: BCG Analysis

security and transparency, ease can get to a common standard improve their ability to make credit
of audit and information sharing, without spending a lot of time decisions on clients. This would
and reduce waiting and processing agreeing on a unified standard. also allow trade banks to serve
times. SMEs more affordably and compete
Another step is to make sure
against the commercial platforms
The challenges may be more players understand the underlying
well-placed to provide SCF and
political than technical. A wide information fabric and make the
other non-documentary trade
range of parties involved in trade right judgments on what data
finance to SMEs.
are at varying stages of digital elements add value. This allows
maturity. Those at an early stage players to agree on new internal Regulators and governance bodies
may struggle to adopt and take processes that better support a also represent some of the largest
part in digital solutions, such as digital model for trade. challenges to a complete digital
blockchain. The large number of transformation. Their primary focus
Players could involve SMEs,
parties makes it hard to come is on the regulatory compliance
providing scale and building
up with a quick and widespread of trade participants instead of
widespread acceptance of the
solution. making trade transactions simpler.
agreed-upon digital standards.
Going digital could Cost-savings from digital efforts in
trade finance should be reflected
To support innovation, these
bodies could use digital
save US$6 billion in prices and create demand. technology to boost trade security,
on costs of US$16 Reducing data intensity would compliance, and the rule of law.
also cut costs for managing Close collaboration globally of
billion and processing data, further these bodies would speed the
accelerating the appeal for SMEs. transformation.
Common standards To face the rapid pace of The road ahead to incorporating
To shepherd the process forward technological progress, and digital technology in trade may
and better manage data intensity, pressures from competitors be long and hard, but the payoff
the first step is to develop and to provide better and cheaper in cost savings, security, and
agree on a framework of industry services, trade banks must have smoother trade processes more
standards for building technology a strong and well-planned digital than justifies the effort.
solutions. The framework must strategy.
be workable for all players and
not favour the interests of the The downside to
few. Given the range of players digital: a huge
involved, convening a conference of
stakeholders and establishing the increase in data
framework could take time.
An alternative would be for one A priority for all

party, such as a global trading A comprehensive digital
platform or a leading industry body, transformation of trade will not be
to forge ahead with an acceptable successful until all major links in the
framework and gain enough value chain collaborate. Corporates,
traction and participants to build for example, should team up with
up scale. The party would then banks and one another to identify
leverage this scale and network the best way to digitise trade
effect to become the industry processes and eliminate paper and
standard. Standards supported by manual processes. Third parties,
competitors and imitators could such as shipping companies and
create some confusion in the insurers, should also collaborate
interim, but this competition would with corporates and banks to make
build a dominant set of standards sure they do not hold up the digital
faster than getting a framework transformation.
that all parties agree to.
Banks should also collaborate with
Another would be for participants technology startups and fintech
to evolve towards common companies to build complementary
standards, adopting or building capabilities, boosting their service
compatibility with existing major while lowering cost-to-serve. These
frameworks when developing new partnerships should get data
solutions. In this way, the industry from the entire value chain and

TRANSFORMATION
Digitising trade/Kicking it into higher gear
Digitising trade/
Kicking it into higher gear
By Michael Vrontamitis, Alexander Goulandris, Michael F Quinn, Dave Meynell,
Bhriguraj Singh, Sean Edwards
Michael Vrontamitis is Head of Trade, Europe and Americas at Standard Chartered Bank and
ICC Digitalisation Working Group co-chair; Alexander Goulandris is Co-founder and CEO
of essDocs and ICC Digitalisation Working Group co-chair; Michael F Quinn is Managing
Director of Global Trade and Loan Products at JP Morgan and ICC Digitalisation Working
Group Head of Sub-Stream: BPO; Dave Meynell is owner of TradeLC Advisory and ICC
Digitalisation Working Group Head of Stream: e-compatibility; Bhriguraj Singh is Global
Head of Documentary Trade, Product Management, Trade and Receivables Finance at HSBC
and ICC Digitalisation Working Group Head of Stream: Minimum Standards; Sean Edwards is
Chairman of IFTA and ICC Digitalisation Working Group Head of Stream: Acceptance.
“Going digital is good for trade and good for

the wider economy.”
Banks today are faced with A mountain of Four billion

compressed margins from labour-
paper to scale documents in
intensive paper-based processes,
The benefits of digitalisation
higher due diligence costs from
to trade finance are widely documentary trade
stricter compliance and regulatory
requirements, and pressures to
acknowledged. An estimated four are in circulation
billion pages of documents circulate
shorten process turnaround times
in documentary trade. Digitalisation A full audit trail that shows a
and simplify risk mitigation. The
can reduce the manual and error- document’s chain of custody over
need for digital innovation has
prone processes for document and its lifecycle can detect risk and
never been greater.
compliance checking. fraud ahead of time and access to

data can make regulatory and client Digital infrastructure first small slice of the overall trade cycle
reporting requirements easier. and is not a wholesale replacement
To speed up and smooth the
of the entire trade finance system.
banking industry’s path to
Technology contributes digitalisation, ICC’s Banking
most to future GDP Commission last year set up a Solution on the shelf
working group on digitalisation Products such as the Bank Payment
The broader effects of digitalisation
in trade finance. Based on the Obligation (BPO) – championed
on facilitating trade and as a result
commission’s three strategic by SWIFT and the ICC Banking
on boosting economic growth
pillars – rule making, advocacy and Commission are helping facilitate
are also clear. Progress from
financial inclusion – the new group and speed up trade by providing
technology will have the greatest
is creating a framework for the trading parties and intermediary
impact on GDP levels by 2035,
digitalisation of trade finance so banks with digital data at each
accounting for an extra 20% of
that all ICC rules are e-compliant stage of the transaction and
GDP in Brazil and in China an extra
and reflect evolving market shipping cycle.
55%, according to the World Trade
practice.
Organization (WTO).
BPO is a hybrid between L/Cs
The working group is also and open account. It provides
By leveraging data to make
developing minimum standards for payment assurance on the
credit decisions faster and more
digital connectivity, and looking at automatic exchange and matching
efficiently, digitalisation can also
the legal issues related to the three of digital trade data without paper
shorten supply chains, expedite
main areas of the trade finance documents for a transaction. The
faster knowledge transfer across
industry’s development. advantage is the BPO already has
trading nations, bring together new
trading partners, and prompt new a set of rules in place published
In documentary trade finance,
trade flows. by ICC. It is the only open network
underpinned by traditional
solution on the market.
letters of credit (L/Cs), banks are
Aiding trade improving processing efficiency, But use has been slow: only 13%
reducing costs, and strengthening of Global Survey respondents say
Digitalisation will help boost trade
security by digitising paper their bank uses the BPO. Corporate
in three main ways: by digitising
documents. use is low, largely because banks
paper documents, replicating
existing business practices in digital have not promoted it.
format, and experimenting with New platforms
Landmark transactions continue,
new technologies, products and In the past year, banks have though. In 2016, Commerzbank
processes. launched initiatives for the processed the first live BPO
electronic presentation of transaction between Germany
The challenge is that no standard
documents. Danske Bank and China, the first export BPO
method exists embracing such a
announced it was partnering with financed in favour of the supplier
range of initiatives.
essDocs, a platform to digitise and between Germany and Turkey, and
Moving beyond paper-based automate trade operations, finance the first BPOs in the UK, together
processes is by no means easy. and logistics so its corporate with UniCredit. Commerzbank also
It requires simultaneous change customers can use electronic pioneered the instrument in Austria
by multiple counterparties. A presentation under eUCP L/Cs last year, and in Belgium and
basic shipment from east Africa and eDocumentary Collections. Greece this year.
to Europe can undergo more than In March, Evergreen Line, a large
200 interactions comprising nearly Taiwanese shipping company, Supply chain finance (SCF)
30 parties, including shippers, said it is partnering with Bolero, a platforms are also popular as
forwarders, ocean carriers, ports provider of electronic bills of lading economic volatility and longer
and custom authorities, before (eBoL). But while these two key supply chains from globalisation
banks, insurers, and export credit players have offered electronic test corporate financial
agencies get involved, according BoLs for years, uptake has been sustainability. While five or six
to global transport and logistics slow. banks dominate SCF, corporates
company Maersk. can choose from alternative SCF
At the same time, while electronic providers that use techniques
So it comes as no surprise that L/Cs (eLoC) have been available for beyond traditional payables
trade finance lags behind retail some time, despite a few landmark finance.
banking and payments processing transactions industry-wide use has
in the race to go digital. been limited. While the reasons Last year, FCI (formerly Factors
vary, it is worth noting each Chain International) said it is
electronic system represents only a partnering with Demica, a specialist

TRANSFORMATION
Digitising trade/Kicking it into higher gear
provider of working capital two, to make cross-border trade Uniformity counts

solutions, on a new SCF platform, and financing cheaper, safer and
Guidelines are the biggest missing
FCIreverse. FCI will ramp up its more efficient.
link in the industry’s move to digital,
network of 400 banks and factoring
which will hasten learning, help
firms to fund client suppliers Digital ledger tech practitioners analyse platform
anywhere in the world.
could transform risks, and understand the effects of
digitalisation.
The hottest trend trade finance
Clearly defined rules will also
Expanding 20% per year, payable Initiatives underpinned by DLT accelerate the spread of knowledge,
finance is one of the fastest-growing and open-source as a result make it easier for banks and
areas of trade finance. A total of could transform the trade finance corporates to connect to digital
43% of Global Survey respondents industry by furthering industry-wide platforms, and make sure all service
said supply chain finance is a standardisation, collaboration and providers are working to the same
priority area of development and consensus. criteria. ICC’s Banking Commission,
strategic focus in the next year.
given its long-established track
But DLT solutions may pose new
record in producing universally-
risks in cyber-security and data
Power to transform security. Although banks now
accepted rules and guidelines to
The biggest development in the help facilitate the free flow of trade,
understand the cyber-security risk
last year is probably the growth in is uniquely placed to help set these
to core platforms, payments and FX
distributed ledger technology (DLT) rules.
businesses, they must apply these
and blockchain applications. These lessons to trade finance. In the last year, the working group’s
trade by recording transactions in
stream on minimum standards has
sequential blocks, creating data Applying these emerging
been laying the groundwork for an
that all parties in the supply chain technologies to trade finance at
initial set of minimum standards
share, with real-time updates. What any scale is a long-term endeavour.
for the digital connectivity of
is more, banks can eliminate the In the meantime, the BPO today
participants in a trade ecosystem.
risk of fraud by cross-referencing offers banks a digital process for
This year conversations are being
the payment of invoices against a settlement, risk mitigation and
held with banks to get a clearer
blockchain-based central registry. financing and a comprehensive
picture of what is required.
digital foundation to transition to
This has prompted bank-led The e-compatibility stream,
DLT.
consortiums to experiment with which evaluates ICC rules for
trade-related, digital ledger For the BPO to work, the Uniform e-compliance, is updating some
technologies, including we.trade to Rules for Bank Payment Obligations e-rules by the fourth quarter.
make domestic and cross-border (URBPO), SWIFT’s Trade Services
commerce easier for SMEs. The Utility (TSU), and ISO data An organisation
standards must be modified.
Marco Polo initiative is another
– working to develop cutting-
needs to take
edge trade finance solutions For this reason, last year the up digital roles
Banking Commission’s Executive
using a robust suite of APIs and
Committee set up a BPO sub- as notary and
technological tools.
stream on emerging technologies. standards setter
Recently Maersk and IBM unveiled a The work will examine if the BPO
blockchain-based venture to digitise can be a transitional framework,
and enforcer
the supply chain from end-to-end. how to modify and revise the BPO The transition to digital is not
These are a few initiatives that will rulebook to directly include buyers possible without changes to laws
likely be commercialised in 2018. and sellers, and how these changes and regulations. To create a clear
would affect the requirements of framework, the working group’s
Governments also need to be more governing standards. acceptance stream is conducting an
aware of the need to digitalise
interim legal survey to understand
trade finance. Last year, the defacto These revisions could take up to
the rights of third parties
central banks of Hong Kong and two years. The sub-stream is also
under paper versus electronic
Singapore said they are linking looking to boost the industry’s use
presentation of documents, to be
up their trade finance platforms of the BPO.
finished by the second quarter. The
under development with blockchain
working group is also promoting
technology. Called the Global Trade
adoption of UNCITRAL e-commerce
Connectivity Network (GTCN), the
legislation with several partners,
vision is to build an information
including the G20, WTO, IFC.
highway based on DLT between the

Attention also need to be paid to Deutsche Bank, HSBC, KBC, Natixis,
the digital trade finance ecosystem. Société Générale and UniCredit
An organisation needs to take with IBM, targets SMEs.
on roles such as a digital notary, Background information
custodian, standards setter and But the broader strategy should be
enforcer, perhaps an independent how to merge these pockets into Connecting from end
institution which raises issues of a larger trade ecosystem. Ideally, to end in real time
funding and governance. data would seamlessly move from
Enterprise software firm
one digital island to another, while
R3 started the Marco
The working group has laid the buyers, sellers, banks and logistic
Polo initiative in 2017
groundwork so that existing rules companies could rely on data, and
with Technology firm TX
are ready for a digital environment, information flowing through the
acting as the vendor. BNP
and taken steps to give guidance to supply chain would be speedier
Paribas, Commerzbank, ING
industry. than the flow of goods.
and Standard Chartered
Platform developers must be collaborated.
Technology is not enough mindful of open standards and After a successful six-
New technology alone cannot bring future interoperability. The full month proof of concept, the
about digitalisation in trade finance. benefits of digitalisation can only blockchain-based platform,
While banks are good at building be realised if a few trade corridors which provides end-to-
digital platforms, many operate in go fully digital, such as the Hong end, real-time connectivity
digital silos or proprietary islands Kong-to-Rotterdam corridor. between trade participants
which stymies the free flow of
while getting rid of data
information. Encouraging greater Digitalisation, although largely
silos, the project is being
collaboration through rule-making, initiated by banks and technology
piloted, and aims to onboard
advocacy and engagement is companies, must prove its worth
up to two dozen banks by
crucial. to the entire trade cycle. Many
the end of the year.
trade finance banks, for instance,
Since trade often relies on a are still not multi-bank capable. R3 is also running the DLT-
dense network of counterparties, To communicate digitally with based Voltron platform
it is important to look beyond banks, a corporate needs e-banking to connect importers and
digitalising pockets of transaction software, which is unsustainable in exporters. In the long term,
flows. A practical view on the long run. the two initiatives will be
integration and creating a legal merged into a larger system
and regulatory framework for all Digitalisation is fundamentally
of trade products.
with a set of minimum standards not only about aligning the
and clearly defined rules is vital for industry with one of the biggest
interoperability. trends in history. It is also about
meeting customer and compliance
With lots of digitalisation projects requirements down to the level of
underway, the industry is in a better SMEs. Find more online
position than a year ago. But the
process remains huge, complex and The focus should also be using We.Trade
costly. this new technology to improve we.trade manages,
the efficiency of real transactions, tracks and protects trade
and driving home the benefits of transactions between
Network effects digitalisation. European SMEs. Using
The digitisation of trade finance DLT and smart contracts,
is essentially about building the open platform’s
a network, which requires all shareholders include
participants to continuously Nordea, Santander,
cooperate. Collaboration between Deutsche Bank, HSBC,
banks and fintechs will speed up Rabobank, Société
the journey to digital in a new Générale and UniCredit.
way. Blockchain-based platform New member banks
Batavia, a collaboration of UBS, will be onboarded to
Commerzbank, Bank of Montreal, standardise, collaborate
CaixaBank, Erste Group and IBM and achieve consensus.
will provide trade finance for Commercialisation is
transactions all modes of transport. expected in the second
We.trade, a collaboration among quarter.

TRANSFORMATION
Conflicts in laws/Time to get your clauses in order
Conflicts in laws/
Time to get your clauses in order
By Angelia Chia
Angelia Chia is a Partner at Mayer Brown.
Why banks need to take a hard look at their

policies and procedures – and exposure and
tread carefully in using electronic contracts.
Traditional Trade New York – where payment was to of payment following the Power
be made into the Iraq oil proceeds Curber case, which would have
A recent court decision marks
account at the Federal Reserve been New York.
a fundamental shift in how the
Bank
governing law is determined for These two clauses were added
letters of credit (L/Cs) which will London – where the London branch so the court had to decide if it
have a major impact on trade of a French bank issued the L/Cs is changed who was the beneficiary:
finance contracts globally, and for located and where parties wanted
“A Provided all terms and
legal and credit risk assessments. enforcement to take place
conditions of this letter of credit
As a result, trade finance
France – where the head office are complied with, proceeds
practitioners need to revisit the
of the bank issuing the L/Cs was of this letter of credit will be
potential risks and how to address
located. irrevocably paid in to your
them in drafting these contracts.
account with Federal Reserve
In unanimously overruling the Court
In Taurus Petroleum Ltd v State Oil Bank New York, with reference to
of Appeal decision in Power Curber
Marketing Company of the Ministry “Iraq Oil Proceeds Account”.
International Ltd. v. National Bank
of Oil Iraq 1, the UK Supreme Court,
of Kuwait, the UK Supreme Court These instructions will be followed
the country’s highest civil court,
decided that debts arising from irrespective of any conflicting
recently decided on two L/Cs
payments under L/Cs will follow instructions contained in the
issued by the London branch of
the general position in English law: seller’s commercial invoice or any
Credit Agricole subject to UCP600.
the law governing the debt will transmitted letter.
The jurisdictions were: be where the debtor’s residence
“B We hereby engage with the
is located. Following the Taurus
Baghdad, Iraq – the seat of beneficiary and Central Bank
case, the governing law is London,
arbitration and where there was a of Iraq that documents drawn
where the branch of the French
promise to pay the Central Bank of under and in compliance with the
bank is located, instead of the place
Iraq terms of this credit will be duly

honoured upon presentation as legal position, banks should decide law considerations. This is to ensure
specified to credit CBI A/c with if their policies and procedures the instrument is still enforceable
Federal Reserve Bank New York.” need to be updated. against the relevant parties.
The court had to interpret L/C issuers must have a robust To keep up with the on-going
whether these clauses changed process to make sure clauses added development in respect of
the beneficiary of the L/C from to the L/C are consistent and do negotiable instruments, the United
the State Oil Marketing Company not create operational risks and Nations Committee of International
(SOMO) to the Republic of Iraq, as unintended consequences. Trade Law (UNCITRAL)
the proceeds were to be paid to promulgated the Model law on
the Iraq Oil Proceeds Account, not Open account and Transferable Records and this is a
to SOMO. The court decided these work of noteworthy effort.
supply chain finance
clauses did not change the position
Supply chain finance techniques Electronic platforms raise new
under the L/C. SOMO stayed the
for open account typically involve questions on the enforcement
beneficiary.
a loan product or an assignment of electronic contracts, and
of accounts receivables, in all the capacity and authority of a
Takeaways for practitioners its complexity for cross-border party that attaches an electronic
The Taurus Petroleum case is a transactions. These techniques signature and its probative value in
significant decision and a stark sometimes include negotiable an enforcement action. UNCITRAL’s
reminder for L/C practitioners to instruments, such as bills of promulgation of the Model law
consider conflicts of laws. exchange, electronic platforms on Electronic Commerce laws3
and guarantees, and other security and Model laws on Electronic
While principal contractual terms
arrangements that add an extra Signatures4 is important. But these
between parties are typically
layer of legal inquiry. model laws have not been adopted
agreed as embodied in the relevant
consistently across the globe, and
ICC rules, these rules still have to be In 2016, ICC together with other many countries have not adopted
implemented in many jurisdictions, trade industry bodies published the electronic commerce legislation.
and parties are free to amend Standard Definitions for Techniques
the terms and rules. As such, all of Supply Chain Finance, a guide
relevant considerations under the on terms and techniques. This was
E-takeaways
applicable laws will have bearing on a good first step in coalescing Trade and trade finance are
how the terms are interpreted. loose definitions in a complex field. entering a new and exciting digital
Understanding the nature of the age. But the watchword is caution.
Banks generally resist adding
products, such as asset purchases While industry bodies try to keep
clauses on the choice of governing
versus loans, is important from pace with industry developments,
law and where and how to resolve
many perspectives, even though laws in jurisdictions are developing
disputes because there are
the economic outcome is essentially at a feverish pace. Practitioners
difficulties when dealing with so
the same. must conduct the right amount of
many jurisdictions and getting all
due diligence in this increasingly
parties to agree. Banks must be For receivables purchases, at integrated and complex world.
aware of these risks. least two contracts and relevant
Hong Kong and Singapore will in governing laws must be considered,
all likelihood be persuaded by the in assigning or transferring
Taurus decision. So it is possible receivables and related rights, by
three of the world’s financial hubs way of ownership. What is more,
will follow this change in legal buyers or sellers typically try
position. to avoid booking a loan, which References and notes
introduces accounting issues. This
As such, when banks take into 1. https://www.mayerbrown.
is on top of the financial industry’s
com/UK-Supreme-Court-
account country risk to assess need to achieve the right standards provides-important-
pricing and exposures, they should of ownership and control over principles-02-01-2018/
consider whether to review policies, accounts receivables and cash 2. http://www.uncitral.org/pdf/
procedures and systems. They need proceeds. english/texts/electcom/MLETR_
to determine which country to take ebook.pdf
into account, whether it is the place For negotiable instruments such
3. http://www.uncitral.org/
of payment, following the Curber as bills of exchange (financial
pdf/english/texts/electcom/
case, or the place of debtor’s instruments created by statute V1504118_Ebook.pdf
residence, following the Taurus in one jurisdiction) their form,
4. http://www.uncitral.org/pdf/
case. Given the impact on banks negotiation, acceptance and need english/texts/electcom/ml-
and their large portfolios in L/C for noting and protesting in other elecsig-e.pdf
transactions from this change in jurisdictions give rise to conflicts of

TRANSFORMATION
Digital forfaiting/Making distributed ledger tech a reality
Digital forfaiting/Making distributed

ledger tech a reality
By Sean Edwards
Sean Edwards is Chairman of ITFA.
Forfaiting may help solve the problems getting in the way

of commercialising distributed ledger technology (DLT).
This is especially true for receivables finance. DLT could
also ramp up the market for forfaiting, estimated at about
US$35 billion, not to mention if some of the value of
receivables discounting was reallocated to forfaiting.
Negotiable instruments this, either according to common electronic signatures. But legal
law in many countries, as for writing issues remain, such as the ability to
on blockchain?
on stones and sea shells, or because deliver negotiable instruments, in
To get there, several legal
of specific laws. a very specific legal sense. Work is
issues must be resolved. For
going on to resolve these issues.
promissory notes, which offer the Recent changes include:
most potential, most legislative
definitions of these instruments • an English law change Real digital assets
require writing and signature. in 2015 allows electronic Given the right legal framework is
The English Bills of Exchange Act presentation of promissory in place, promissory notes could be
1883 states there must be “an notes and bills of exchange created that are true digital assets
unconditional promise in writing… • eIDAS (electronic IDentification, (or state objects, as the Corda
signed by the maker...”. Authentication and trust blockchain platform defines them).
Services), an EU regulation This is different from a functional
Digital promissory and standards for electronic equivalent or substitute, and it
is a powerful construct as it has
notes offer the identification, and trust services
inherent value.
for electronic transactions
most potential in the EU single market
It is a type of ‘private money’
Electronic writing and signing eIDAS show the desire is there to without the complexity and
are therefore critical to create integrate the highest standards of controversy of cryptocurrencies.
promissory notes in digital form. cyber-security in e-commerce, by It can exist on any digital network,
Most advanced economies allow giving special status to qualified or be free of that network, even

though a digital network has many What is more, blockchain being developed, are crucial for
advantages. What is more, digital promissory notes will satisfy NBFIs. Blockchain promissory notes
assets are technically easy to the needs of an important simplify all this, while minimizing
create, as R3, TradeIX and Wave potential partner, non-bank performance risk during the
have shown. financial investors (NBFIs). These process of credit analysis.
instruments can be assigned some
Promissory notes of the characteristics of quoted DLT is some of the best technology
that could unite and meet the
Eurobonds, which these investors
come without the are comfortable with. NBFIs would expectations of the many actors in
complexity and also like their simple legal structure trade finance. Digitised traditional
and tradability. forfaiting instruments would
controversy of deepen and broaden the market
cryptocurrencies Lack of a suitable operating for trade finance as well as boost
infrastructure is one of the biggest demand and supply.
obstacles that prevents NBFIs from
A new dog with old tricks investing more in trade finance.
Many proposed blockchain
applications for trade have focused Blockchain
on matching or tracking invoices,
purchase orders and shipping minimizes
data. There has been less focus performance risk
on creating powerful and robust
payment obligations. A digital
during credit
promissory note has the benefits of analysis
a paper promissory note, without
the mostly practical and logistical Assigning ISINs and fitting self-
drawbacks of paper. contained instruments into the right
operational environment, which is
Transaction
Obligors Investors
Banks
ORIGINATE AND DISTRIBUTE
What? BILATERAL BASIS

(E.G. MRPA, INSURANCE )
MANAGED FUNDS
Why?
BLOCKCHAIN PROMISARY NOTES
INCREASED ORIGINATION
Source: Casterman Advisory April 2018

TRANSFORMATION
Voluntary Sustainability Standards/Schemes are spreading
Voluntary Sustainability
Standards/Schemes are
spreading
By Mathieu Lamolle, Sandra Cabrera and Regina Taimasova
Mathieu Lamolle is a Senior Advisor – Sustainability Standards & Value Chains at
International Trade Center; Sandra Cabrera and Regina Taimasova are Advisors –
Sustainability Standards & Value Chains at ITC.
Consumers from Brazil to Belgium are

getting savvier about sustainability
issues related to the products they buy,
a big reason for the growth in voluntary
sustainability standards. But several
problems need to be solved on the use of
VSS’s.
Voluntary sustainability standards to today, and these systems cover The rising number of sustainability
(VSS)1, the market-driven tools to a whole host of sustainability standards tracks developments in
control for sustainability-related issues: from fair and ethical trade the global sustainability agenda.
risks in the supply chain, have really to climate change adaptation, from The United Nations Conference
caught on since they were first textiles and tourism to forestry and on Environment and Development
introduced way back in the 1960s. mining. in Rio de Janeiro in 1992, and
Of recent, there has a ferment of adoption of Kyoto Protocol on
new ways to measure sustainability Voluntary reducing greenhouse gas (GHG)
and hold suppliers accountable,
driven by a rising sustainability
sustainability emissions by the states in 1997,
effectively triggered the setup of
consciousness of consumers that is standards now VSS, among other world forums
rapidly spreading across the globe. cover a wide range and international bodies set up
since to address climate change
In the early days, VSS mainly of issues and and sustainable development.
covered agricultural products and
organic production. Fast forward sectors

Voluntary standards pick up pace in the early ‘oughts
Cumulative number of initiatives
180
160
140
120
100
80
60
40
20
0
1967 1976 1982 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015
Source: International Trade Centre and European University Institute (2016). Social and
Environmental Standards: Contributing to More Sustainable Value Chains. ITC, Geneva.
There are five other reasons behind hectares in 2015 from 1.4 million VSS is taking hold
the rise in VSS standards: hectares in 2011, growth of 179%. 2
in developing
• growing concerns about the But despite this rapid growth,
environmental and the social the market for certified products countries
impact of production processes is still tiny: less than 1% of global
agricultural areas. 3 Heading south
• globalization of trade, as
products are sourced from Experts criticise the growth in the While VSS first emerged in
all over the world, risks and number of voluntary sustainability developed countries, developing
demand for traceability standards, saying sometimes it countries are now setting up their
raises production costs, if a supplier own schemes. Brazil, South Africa,
• concentration in the food
to several buyers has to comply with India and Kenya have the highest
industry: as processors and
several standards. number of VSS headquartered in the
retailers seize more market
developing world, ITC and European
power, they impose more The problem is made worse when
University Institute (EUI) research
technical requirements for the supplier bears the costs of
shows.
the products they source, certification, as is mostly the case.
including on product This is a major problem for small-
quality and sustainability and medium-sized enterprises
of production processes and smallholders who often lack
enough funds to cover the costs of References and notes
• greater consumer demand for
certification. 1. Sets of requirements that producers,
sustainably-produced products
traders, manufacturers, retailers
• more competition, which drives Too much of a good thing? or service providers may be asked
to meet, relating to a wide range
businesses to impose stricter
Multiple standards also leads to of sustainability metrics, including
sourcing requirements, including respect for basic human rights,
confusion among consumers, who
sustainability standards worker health and safety, the
sometimes cannot distinguish environmental impacts of production,
Production volumes compliant between sustainability labels community relations, land use
with VSS have risen in tandem. and cannot understand product planning and others. The United
claims and sustainability impact. Nations Forum on Sustainability
For example, the Better Cotton
Standards (UNFSS) definition.
Initiative’s certified cotton lint As a result, consumer trust is
volume rose to 2,086,000 metric undermined. 2. The State of Sustainable Markets –
Statistics and Emerging Trends 2017.
tons in 2015 from 35,000 metric ITC, Geneva.
Several trends have emerged in
tons in 2010 while the land area went
the creation of VSS, which provide 3. Potts, J., Voora, V., Lynch, M. and
to 2,217,000 hectares in 2015 from
insight on how sustainability Mammadova, A. (2017). Standards
65,000 hectares in 2010. Fairtrade’s and Biodiversity: Thematic Review,
standards will evolve in the future.
certified land area rose to 2.5 million IISD.

TRANSFORMATION
Voluntary Sustainability Standards/Schemes are spreading
VSS is taking hold in developing water supply and sewage, real New assurance
countries for three reasons: estate, transportation and storage.
models are
• concerns over sustainability, Tourism is the largest VSS-
as local producers develop certified service sector: Travelife, a emerging
their own standards sustainability standard for tourism,
But due to the high costs,
for instance already certifies
• cost effectiveness of local questionable integrity of auditors
more than 1,300 hotel members
systems, including local and audit duplication, other
worldwide.
assurance mechanisms for assurance models are emerging.
assessing compliance Self-declaration is a first step
Hardwiring VSS towards recognized compliance.
• ownership of the sustainability
Using VSS mechanisms, more New concepts are coming to the
agenda, including translating
governments are embedding their fore for shared responsibility and
international schemes
sustainability commitments in accountability in the supply chains,
to suit local issues
legislation, and private companies in which business partners divide
In China, for example, authorities are embedding their commitments up responsibility, and do not rely
are developing national VSS instead into corporate strategies. For exclusively on external assurance
of helping develop international instance, Unilever developed its providers to make sure sustainability
standards. China’s standards own Sustainable Agriculture Code requirements are covered in their
substitute for major international (Unilever SAC) to make sure its supply chains.
standards. The Chinese Social suppliers comply with the minimum
Companies and standard-setting
Compliance Management System sustainability requirements set by
organizations are collaborating in
CSC9000T is a national response to Unilever. By 2020, Unilever aims
joint efforts to boost sustainable
the Fair Labour Association (FLA), to source all of its agricultural raw
production in the supply chain.
Social Accountability International materials sustainably. Mars, on
They get together to set common
(SAI) and the Ethical Trading the other hand, relies on external
codes and IT solutions, that allow
Initiative (ETI). standards such as Rainforest
them to assess suppliers and
Alliance, UTZ, Fairtrade, and
For now however, demand for manage supply chain information on
Roundtable on Sustainable Palm
VSS-certified products is still much supplier compliance to sustainability
Oil (RSPO) to source product
higher in developed countries, as standards or frameworks.
ingredients. The company aims to
consumers in developed countries
source all of its cocoa from certified
are more aware and demand Pooling resources
sources by 2020.
sustainably-made products.
For instance, Nestlé, Unilever and
Governments are recognising more
But awareness is rising among Danone set up the Sustainable
and more the value of working
consumers in the developing world. Agriculture Initiative (SAI) Platform
with VSSs as a mechanism to meet
A Nielsen survey conducted in 2014 in 2002 to share knowledge and
their sustainability commitments.
showed that 63% of respondents in best practices for developing
Depending on rules, governments
Latin America were willing to pay and carrying out of sustainable
may not explicitly refer to specific
more for products and services from agricultural practices at a
VSS, but in procurement guidelines
companies with a positive social and precompetitive level. Today the
they reference the underlying
environmental impact, up from 13% Platform membership counts more
criteria of VSS or create lists of VSS
in 2011. In the Asia-Pacific region the than 90 members. Developed by
meeting these criteria.
figure was 64% in 2014, 9% up from its members, suppliers, farmers and
2011. external stakeholders, the Farm
Alternative audits Sustainability Assessment (FSA)
From raw materials to Some entities substitute traditional is a common framework of leading
services models of audit and assurance with food and drink companies that use
alternative models that go beyond SAI Platform to source sustainably-
Product scope of VSS is also
a certification system. Traditional produced agricultural materials.
shifting – to services. In the 90s,
assurance models are usually based
VSS dealt with commodities, such
on independent, third-party audits,
as coffee, cocoa, and tea. While
and have proved to be efficient at
commodities is still the largest group
assuring compliance against the
of sustainably-certified products,
VSS.
VSS-certified services are gaining a
market niche. These services include
catering, cleaning, administration,
financial and insurance services,

Setting local standards: Indonesia’s palm oil

Indonesia’s Sustainable Palm scheme for sustainable palm oil,
Oil (ISPO) is a public standard accounting for 18.5% of palm oil
developed by Indonesia’s area worldwide.
Ministry of Agriculture to deal
ISPO was set up to retain
with issues like deforestation,
ownership of sustainability
the protection of High
issues in palm oil cultivation
Conservation Value Areas
and that depend on public
(HCVs), and child and forced
policies, such as land, and
labour.
registering and training farmer
It is an alternative to the farmers. These policies are not
Roundtable on Sustainable Palm fully handled at the mill and
Oil standard (RSPO), the world’s plantation levels in the RSPO
largest voluntary certification standard.
150 ICC
GLOBAL
GLOBAL
TRADE
SURVEY
– SECURING
ON TRADE
FUTURE
FINANCE
GROWTH
TRANSFORMATION
ICC’s work on sustainable trade finance/Blueprint in the making
ICC’s work on sustainable trade finance/

Blueprint in the making
By Ruediger Geis and Harriette Resnick
Ruediger Geis is Head of Product Management Trade at Commerzbank; Harriette Resnick is former Managing
Director and Associate General Counsel at JPMorgan Chase supporting its Global Trade business and co-chair of
the ICC Banking Commission’s Sustainable Trade Finance working group.
A new ICC working group on sustainable finance started

in 2016 is looking into standards, a due diligence tool, and
ways to spread best practices.

How do we safeguard the planet, its The second force is credit and As regulation and
inhabitants, and global economic reputational risk. No bank wants its
growth? There is no easy answer, image tarnished, or to risk greater advocacy grow,
but sustainable trade can help. losses, due to the unsustainable so does the threat
What is needed are responsible practices of a customer or a
companies that conserve the company in its supply chain. The of protests or
Earth’s natural resources and reputational risk department litigation
protect the environment from at Commerzbank, for example,
climate change; ethical supply on average checks more than There are numerous recent
chains that guarantee fair labour 5,000 transactions, loans and examples of business losses
conditions and human rights for relationships a year against related to illegal deforestation. For
workers; and resilient business strict social, environmental, and example, a U.S. lumber company,
models that sustain employment governance (ESG) criteria. which was fined and had its assets
and prosperity well into an seized because of logging in the
uncertain future. These risks go well beyond bad habitats of endangered species
publicity. As regulation and social in Russia. An Indonesian palm oil
As the lynchpin of the real advocacy grow, so does the threat producer is no longer an eligible
economy, the banking sector can of protests or litigation. Bank supplier to major importers
play a critical role by providing customers failing to manage these after being suspended by the
sustainable trade finance. risks are vulnerable to regulatory Roundtable on Sustainable Palm
fines, liability for damages, or Oil, a certification authority. A
losses. cocoa plantation company with
Outside forces
activities in Latin America had
Several forces are steering the
its operations halted, trading
trade finance industry in a more
sustainable direction.
The first force is regulation. More

local, national and international
authorities recognise the need to Background information
combat and adapt to the impact of
climate change, support the Paris Sustainable trade finance defined
Agreement, and realise the UN’s he ICC Banking Commission
T the principles of sustainable
Sustainable Development Goals. defines this as “finance which development such as outlined in
supports goods or services this Charter, and consider their
The Financial Stability Board’s Task
produced in a manner impacts on the environment
Force on Climate-Related Financial
that minimises adverse in which they operate.”3
Disclosures highlights the need for
environmental or social impacts The Charter recognizes the
business to be transparent about
or risks, or that promotes importance of implementing
material risks from climate change.1
environmental protection or this approach with distributors,
The European Commission’s high-
social benefit.” service providers, and
level expert group on sustainable
other relevant partners, and
finance is outlining a blueprint In its 2015 Charter for
collaborating with all actors
for a financial system that makes Sustainable Development,
in the value chain to achieve
sustainability considerations part of the ICC set forth guidelines
responsible behavior across the
decision-making. 2 to achieve sustainable
entire product or service life
development in a business
Government restrictions on the cycle. Applying this approach
context, described as “a process
import of conflict minerals, illegally to the context of traditional
whereby companies seek to
harvested timber and the use of trade and supply chain finance
manage their financial, societal
forced labour or child labour and products, our working group
(including governance) and
related disclosure requirements has defined “Sustainable Trade”
environmental risks, obligations
add to the need for greater as “the business and activities of
and opportunities.” This is
transparency on how goods are buying and selling commodities,
commonly referred to as a
financed and produced.4, 5, 6, 7 goods and services that meet
triple bottom line approach
environmental, social and
where business connects to
With transaction banks increasingly economic criteria capable of
healthy and balanced economic,
under the microscope, regulations benefitting all actors involved
societal and environmental
will probably get tougher, and minimizing adverse impact
systems. In order to do so
and penalties bigger for non- while fostering sustainable
businesses must be aware of
compliance. global development.”

TRANSFORMATION
ICC’s work on sustainable trade finance/Blueprint in the making
suspended, and debt and equity For a start, banks that embrace international conventions, and
delisted. It is now insolvent. 8 sustainable trade and supply environmental conservation. The
chain finance could reduce the challenge for banks lies in assessing
The third force is the market. market, credit and reputational which of the many certification
Consumers are more aware of and risks associated with lending to schemes have standards that
concerned about the environmental customers that have not yet applied effectively mitigate relevant high
and social footprint of the products appropriate controls to their own risks.
they buy. They have the power to operations and supply chains.
vote with their wallets. Corporates The group has identified the need
are reacting by committing to Banks may even benefit from for an integrated and automated
sourcing sustainably-produced new competitive advantages, diligence tool that leverages
goods, and requiring verification as they become market leaders. existing databases and analytical
from certification schemes that This is crucial for capturing new methods. The Global Map of
screen for environmental and social business from corporate customers Environmental and Social Risk
impacts. already committed to responsible in Agro-Commodity Production
production and sourcing. It is just (GMAP), developed by the
The impact of these combined as critical for investors and retail International Finance Corporation
forces is evident. Since 2011, the customers, which are more focused and the World Wildlife Fund, lets
amount of global soy produced that on the social and environmental the user search to see if specific
is verified by the Round Table on track record of banks. products have had harmful social
Responsible Soy has grown five- and environmental impacts in the
fold. In the same period, the land The trade finance industry will country of production.
supporting sustainably cultivated start to generate real value once
bananas expanded three-fold; banks integrate sustainability Examples of commodities linked to
and certified sustainable cotton principles into business as usual. high risk in many regions include
production has grown almost The first step is for banks to talk soy, cotton, cocoa, coffee and palm
nine-fold over the past decade, to their customers about whether oil. The International Trade Centre
according to the Better Cotton their business raises social and has compiled the Standards Map,
Initiative. environmental concerns and how detailing voluntary certification
they can mitigate these risks. schemes that apply to certain
Banks that ignore fundamental commodities, the requirements
long-term shifts in demand – or they impose and the countries
finance transactions linked to Call-out to collaborate
where the certification bodies
impacts, such as the destruction All easier said than done, but far operate.
of tropical forests, excessive use of from impossible. Industry-wide
water or pesticides, or child labour collaboration can help identify what By collaborating with these
– face losing business and putting steps banks active in trade and international organizations, the
their profits at risk. supply chain finance can take to go working group will design a proof
green. of concept for a single integrated
Banks that The ICC Banking Commission
tool for bankers to easily check for
social and environmental risks and
ignore adverse formed a working group on assess whether a certification’s
environmental sustainable trade finance in April
2016, made up of international
requirements minimize these risks.
and social impacts development banks and This information should help a bank
linked to their commercial banks from across the decide whether or not to proceed
world. with a trade transaction involving
transactions face commodities produced in countries
The group is organised into three
increased risks streams to explore the main areas
with a history of high risks.
where the financial sector can build

Embrace the opportunities momentum for sustainable trade.
The trade finance
Financial institutions that support industry needs
integrating responsible practices Making sense of standards a roadmap
into supply chains could do much
more. They could unlock new
The working group’s first stream for assessing
looks at standards, labels and
opportunities than simply react to
certification. Many labels and sustainability
these trends.
certification authorities claim to
validate fair returns to farmers,
labour practices that comply with

First-ever guidelines Bankers can then have an informed These developments may help
discussion with their corporate provide all-important transparency
The second stream is creating
customers about shared interests in to trade finance transactions.
guidelines for setting best
sustainable trade finance.
practice on analysing the social The demand for sustainable trade
and environmental risks of trade It is a work in progress. Tools are finance will only grow. Banks
finance. Unlike project finance, needed for banks of many sizes and have to be ready for it. With
which benefits from the guidance geographies, including in emerging standards, effective guidelines and
of the Equator Principles, or the markets, and to broaden the focus an awareness of the tools, banks
green bond market, supported beyond agricultural commodities. could reap the rewards of a greener
by the Green Bond Principles, the The working group is asking banks approach to facilitating commerce.
trade finance industry had not for their feedback. Exciting times lie ahead.
developed a roadmap for assessing
sustainability. The working group will confirm
the feasibility, cost and interest in
To address this need, the working using these tools. New approaches
group designed a questionnaire to due diligence should not be
that trade banks can integrate an extra burden on corporate
into their customer due diligence clients, or impede deal flow. The
process as a complement to guidelines and recommendations
existing risk management and KYC will be road tested to identify
compliance procedures. and solve practical challenges to
implementation, and to create a
Guidelines are being developed to
process map for effectively and
go with the questionnaire, which
efficiently using these mechanisms.
highlight other sources, indexes
and databases for reviewing New information sources will
a customer’s sustainability be vital to progress. Corporate
policies, commitments and sustainability reporting is
practices. With this information, improving, and technologies are
a bank can apply internal policies emerging, such as track and trace
defining its risk appetite in solutions that accurately pinpoint References and notes
relation to transactions that may the origin, position, and condition 1. https://www.fsb-tcfd.org/wp-
pose a social, environmental, of goods across supply chains. content/uploads/2017/06/FINAL-
reputational, credit, market, or TCFD-Report-062817.pdf
regulatory compliance risk.
Blockchain 2. https://ec.europa.eu/info/sites/info/
files/180131-sustainable-finance-
Spreading knowledge could incentivize final-report_en.pdf
The third stream works on sustainable 3. https://cdn.iccwbo.org/content/

uploads/sites/3/2015/01/ICC-
educating and training bankers practices in Business-Charter-for-Sustainable-
on sustainable trade. Benefiting Development.pdf
from the educational programmes agricultural 4. http://eur-lex.europa.eu/legal-
developed by the international commodities trade content/EN/TXT/HTML/?uri=CELEX:
development banks represented 32017R0821&from=EN
at the ICC Banking Commission, Blockchain could incentivise 5. https://www.ceres.org/sites/default/
the working group is collecting sustainable practices in the files/Engage%20the%20Chain/
agricultural commodity trade, ETC%20Climate%20Advisors%20
materials and training modules
Case%20Studies%20(1).pdf
that promote sustainability policies by smoothing the approval of
and practices by banks and their transactions based on reliable 6. http://www.ey.com/Publication/
vwLUAssets/ey-the-uk-modern-
customers. confirmation of certification and
slavery-act-2015/$FILE/ey-the-uk-
offering better financing terms to modern-slavery-act-2015.pdf
This stream is also developing certified suppliers.
7. https://www.gov.uk/government/
educational tools for trade finance
uploads/system/uploads/
professionals that highlight the attachment_data/file/652366/2017_
potential sustainability risks uk_annual_report_on_modern_
associated with transactions and slavery.pdf
explain the use of the guidelines 8. https://www.ceres.org/sites/default/

to help mitigate these risks. files/Engage%20the%20Chain/
ETC%20Climate%20Advisors%20
Case%20Studies%20(1).pdf

SPOTLIGHT
Neighbors with close economic ties, China and Singapore
Singapore is launching new initiatives to streamline cross-border trade and a new platform
which could be a global model for distributed ledger technology.
Trade finance is rapidly changing in China, as solutions are found to help SMEs expand abroad
and the One Belt One Road initiative creates huge demand for financing amid a boost in trade
along the route.
SINOSURE, China’s official Export Credit Agency, is building relationships with foreign banks
at home, and providing finance for the Belt and Road and Going Global 2.0 strategies of
expansion abroad.
Global trade in 2028/Singapore’s digital SINOSURE view/What’s driving China’s

trade finance journey galloping growth in trade finance?
Regulatory and business authorities in Amid a transformation of China’s foreign
Singapore lay out their five-point plan to trade structure, SINOSURE is providing the
respond to the needs of business for a risk coverage as the country transitions to an
seamless and interoperable digital strategy innovation-led economy. Page 163-164
for trade and trade finance. Page 157-158
From the Field/How China finances its

growing trade and globalisation
China’s trade finance market has some
unique features, and the country is
moving forward with novel ways to fund
e-commerce. Page 159-162

SPOTLIGHT
Global trade in 2028/Singapore’s digital trade finance journey
Global trade in 2028/

Singapore’s digital trade finance
journey
A joint-contribution by Enterprise Singapore, the Monetary Authority of Singapore
and the National Trade Platform Program Office
Singapore lays out its vision for a globally

connected, digitized world for trade and
trade finance.
Global trade in 2028 is going Shifting global trade flows trade ecosystem of finance and
to look very different. New logistics companies. As a financial
This shift in global trade patterns
technologies such as distributed hub in Asia, Singapore’s financial
towards Asia is prompting
ledgers, big data, and widespread sector aims to connect global
greater investment in trade and
Internet connectivity, will reshape markets and support Asia’s
connectivity infrastructure. To
trade patterns and processes. development, while serving the
capitalise on these growing trade
How is Singapore, a small, open needs of the Singapore economy.
flows, Singapore, as a leading trade
economy at the heart of Asia,
and financial hub in Asia, sees Singapore also has one of the
getting ready for this new world?
an opportunity to digitise trade world’s busiest ports and largest
Asia accounted for 60% of global and trade finance and in so doing transhipment hubs. PSA Singapore
economic growth last year.1 transform the way trade is done. Terminals are connected by 200
Likewise, Asia is seen accounting shipping lines to 600 ports in 123
for about 60% of growth in global A global trading hub countries, with daily sailings to
trade until 2020. 2 Over two-thirds Singapore has a long history every major port of call. Trade
of major commodities are now of being open to trade. Today, connectivity in Singapore supports
produced, consumed and traded in Singapore’s trade flows are more 34,000 local companies in
Asia. 3 than three times its GDP. This wholesale trade, representing 9% of
legacy has spawned the growth of the workforce.4
a comprehensive and integrated

Singapore’s digital journey transformative impact on the Collaborate
financial sector. For example, the To create an open digital
Nearly 30 years ago, Singapore
Capital and Credit Risk Manager ecosystem, MNCs, global banks,
launched a ground-breaking
(CCRM) is an electronic trading shipping lines, and governments
initiative, TradeNet. This national
platform for trade finance assets. with other stakeholders must
single window for trade declaration
A total of 35 users, including 30 collaborate, to forge a common
integrates import, export and
banks, have signed on to the CCRM strategic vision for their digital
transhipment document processing,
platform. This allowed them to list journeys, and see beyond the
and allows trade and logistics
trade finance assets for distribution, marginal commercial value in the
companies to exchange trade data
creating a secondary market short-term.
electronically.
for trade assets and to securely
As technology and innovation manage supporting documentation. Include and train SMEs
continue to transform many This helps create a platform for SMEs make up 60% of trade
sectors, in 2015 Singapore an efficient secondary market finance rejections5, so they will
launched the Smart Nation journey, globally to attract a broader pool of benefit most from the greater
identifying strategic national investors to these instruments, and productivity and access to finance
projects to achieve this vision. In act as a catalyst for trade financing that trade digitalisation provides.
2016, Singapore announced it is in Asia. SMEs need the right training to
developing the National Trade navigate the digitalisation process
Platform (NTP) to create a one-stop and handle critical issues, such as
Five ingredients must be
trade information management cybersecurity. They need to be
system. Once completed, firms will
fulfilled for global adoption aware of the benefits digitalisation
input trade information only once, of digital trade finance. brings - more efficiency, and more
and authorise its use by logistics access to markets and financing.
Technology standardisation
providers, business partners and and interoperability In the global quest for digitising
regulatory authorities. A developer At a recent ICC-World Trade trade finance, Singapore will
zone will be added to the platform Organisation (ICC-WTO) continue to serve as a test bed for
for insights and new services, Roundtable on Trade Digitalisation new digital trade solutions and to
using some of the cross-industry and Facilitation in Singapore, advocate for digital trade initiatives.
data shared on the platform. companies underlined the need for
The platform will also include a technology standardisation and
document hub for each company to interoperability. Several solutions
store structured digital trade data, exist for electronic documentation.
so data can be reused to cut costs ICC, the International Standards
and streamline processes. Organization and the WTO must
Singapore also aims to create each advocate for standards
trade connectivity linkages on data exchange, electronic
with like-minded stakeholders documentation, and the
internationally. In 2017, the interoperability of digital platforms.
Monetary Authority of Singapore
Put in place necessary legislation
(MAS) and the Hong Kong
Greater consistency in legalizing
Monetary Authority announced
digital documents would motivate
they will collaborate on developing
banks and companies to embrace
a Global Trade Connectivity
electronic documentation. DLT
Network (GTCN): an information
offers much-needed security
superhighway will be built using References and notes
and integrity. Governments
distributed ledger technology 1. Asian Development Bank’s Asian
need to coordinate and put in
(DLT), between Singapore’s NTP Development Outlook 2017
place legislation making digital
and the Hong Kong Trade Finance 2. International Enterprise
documents legal.
Platform, to make cross-border Singapore – Your Global Trading
trade and financing cheaper, safer Hub, 2016
Build infrastructure
and more efficient. The GTCN aims Before cross-border information 3. International Enterprise
to go live in 2019, and then expand Singapore – Oliver Wyman
can take off, digital infrastructure
Report on Global Commodity
to other platforms and jurisdictions. must be in place at national level Trading Hubs
To encourage more fintech to capture trade and financial
4. Singapore’s Wholesale Trade
companies to experiment, MAS data at the source. Initiatives such Industry Transformation Map
introduced grants for technology as the GTCN, an important part (ITM), 2017
and innovation. The grants of this evolution, can then build 5. ICC Trade Register Report, 2016
support inventions with potentially connectivity across jurisdictions.

SPOTLIGHT
From the Field/How China finances its growing trade and globalisation
From the Field/How China

finances its growing trade and
globalisation
By Vincent O’Brien and Jun XU
Vincent O’Brien is Executive Committee Member of ICC’s Banking Commission;
Jun XU is Deputy General Manager of the Global Trade Services Department of the Bank of
China Jiangsu Branch in Nanjing, China.
China’s trade finance market has some unique

features, and the country is moving forward
with novel ways to fund e-commerce.
On 29 January 2018, Vincent Here are edited excerpts Sounds promising for expanding
O’Brien, an Executive Committee trade and in turn for trade finance
from the interview:
Member of ICC’s Banking professionals. Does this match
O’Brien (ICC): Chinese President Xi
Commission, sat down with Jun what is happening on the ground in
Jinping recently called for a global
XU, Deputy General Manager of the China?
economy that is more open, diverse,
Global Trade Services Department
balanced, secure, efficient, and Ms Xu: Yes. China is the world’s
of the Bank of China Jiangsu Branch
with higher standards. This would largest exporter and the second-
in Nanjing, China, to talk about the
help not just China but the whole largest economy, in which trade
fast-changing landscape of trade
world, he said: We must remain finance continues to play a major
finance, China’s rapid growth in
committed to openness and mutual supporting role.
trade and internationalisation of its
benefit for all to increase the size Chinese President Xi Jinping
enterprises.
of the global economic pie, he said. has said, “Trade is an important

engine of economic development.” Having said that, based on data about 47%, while export L/Cs are
The government has made many ICC China collected from member less than 5% on average, and export
efforts supporting globalization: banks, trade settlement volumes are documentary collection is about
advancing policies and laws to concentrated in a group of state- 1.5%.
facilitate trade, such as the global owned commercial banks and a few
For imports, the average percent
trade single window system of medium to large-sized shareholding
of outward remittances is around
one-stop services for importers and commercial banks.
34%, almost 13% less than the
exporters; implementing cross-
Estimates show the trade settlement inward remittance for exports. It
border RMB policies to promote
volume of a few major trade banks is interesting to note the average
trade facilitation; developing the
cover 70% of the country’s trade in percent of import L/Cs is around 11%,
Belt and Road initiative; support
goods. about 6% higher than export L/Cs.
for inclusive finance, including to
Import collection is about 3%, nearly
boost the access of SMEs to finance; O’Brien (ICC): It can be hard to
1.5% higher than export collections.
promoting supply chain finance, and define what is a trade finance
formulating laws on letters of credits product. What trade finance O’Brien (ICC): So if there is a
and independent guarantees. products does China have? move away from L/Cs as a trade
settlement instrument with greater
But trade finance in China has Ms Xu: Narrowly speaking, trade
divergence on the export side, what
seen its ups and downs. Trade settlement in China usually refers to
is driving this change?
practitioners are facing new trade payments and receipts, while
challenges on profitability, KYC trade finance covers trade- related Ms Xu: Three reasons. First, China
and compliance, and capital financing products. Maybe it is is one of the largest players in
requirements. After two years of different in other countries. the global trade supply chain.
decline, global trade is growing This position has been facilitated
A survey of 62 banks in China
again, up 14.2% in 2017 from the year by Chinese exporters extending
showed the trade finance
before. attractive trade settlement
departments of 58 banks manage
conditions to buyers. As a result,
The economy is still growing, but not international remittance business
buyers are now usually reluctant to
as fast as before. GDP in China was and traditional products such
use L/Cs, given their higher costs,
up 6.9% in 2017, due to a slowdown as L/Cs, collections, guarantees
complicated procedures, and tying
in the global economy. The road to a and standbys. Broadly speaking,
up credit limits and facilities as a
rebalanced economy is not without trade finance products include
result.
bumps. Like elsewhere, we are facing trade settlement and trade-related
headwinds such as from greater financing products. Second, since China’s reform and
regulatory challenges. Recently, we opening up policy dating from 1978,
In my experience working abroad it
have seen an impact on trade by an major exporters have invested in
seems cross-border remittances in
escalation in trade protectionism building long-term relationships with
banks in the west are not typically
and anti-globalization from our trading partners abroad. L/Cs are
included as trade settlement
trading partners. Technology also no longer the main method to guard
products.
poses a new challenge, but also an against credit risk or country risk.
opportunity. O’Brien (ICC): How have trade Export credit insurance provides an
payment methods changed in recent alternative for mitigating risk.
O’Brien (ICC): Bank of China was the
years?
exclusive provider of trade finance in This trend is consistent with the
China for some time. Can you share Ms Xu: Before 1994, L/Cs dominated growth of cross border remittances,
some background on how trade international trade settlement. But which relates to open account
finance developed in China? as China’s trade rapidly developed, settlement of trade transactions.
cross-border remittances as
Ms Xu: From 1953 to 1993, Bank Third, L/Cs are no longer popular in
a payment method increased.
of China was the designated state China with large corporations due to
International remittances made
foreign exchange bank handling complicated procedures, paperwork
up about 80% of trade settlement
foreign trade settlement and trade and long timelines for receiving
volume from 2015 to 2017, while
finance. Since the foreign exchange payments.
during that same period L/Cs were
management system was reformed
about 15%, a drop from about 19% in For small- to medium-sized
in 1994, focused on implementing a
2014. enterprises (SMEs), the situation
single foreign exchange rate system,
is even worse. On the one hand,
the State Administration of Foreign O’Brien (ICC): How have exports
SMEs have little bargaining power;
Exchange has begun managing and imports evolved?
On the other hand, many SMEs are
foreign exchange businesses.
Ms Xu: For exports, inward unfamiliar with L/Cs and consider
Commercial banks with a foreign
remittances have risen about 1% a them an unreliable settlement
exchange business license may
year since 2015, now comprising method.
engage in foreign trade and finance.

SPOTLIGHT
From the Field/How China finances its growing trade and globalisation
O’Brien (ICC): Can you explain This development initiative of the Less than six months ago on 5
what you mean by ‘unreliable’ Chinese government focuses on October 2017, the State Council of
settlement method? coordinating policies, facilitating P.R.China published The Office of
connectivity, unimpeded trade State Council’s Guidance on Actively
Ms Xu: Feedback from several
flows, and financial integration. Promoting Supply Chain Innovation
major banks in China shows a big
and Application. This calls for
difference between the refusal rate Over the last four years, more than
promoting SCF to the real economy,
under export and import L/Cs. 100 countries and international
and encourages commercial banks
organisations have supported or
The refusal rate under export L/ and other providers to set up
participated in the Belt and Road’s
Cs is reported to be about 30% technology-based SCF platforms.
construction.
whereas under import L/Cs it is The objective is to provide efficient
about 1%. Trade along the Belt and Road has and simplified financing channels,
felt the effects in trade volume and especially for SMEs, and to
O’Brien (ICC): Can you explain why
direct investment. In 2017, trade promote the development of online
the refusal rate under import L/Cs is
rose 17.8% and direct investment technology-driven SCF services.
surprisingly low?
reached US$14.4 billion. With this focus and stimulus, SCF
Ms Xu: For two reasons: First, since will see a significant increase and
Guarantees issued subject to
the Supreme People’s Court of concentrated focus in China.
URDG758 are up every year and will
P.R.China introduced The Provisions
continue to rise, in my opinion. O’Brien (ICC): Speaking of
of the Supreme People’s Court on
technology, how are the Bank
Some Issues in the Adjudication of Standbys are also on the upswing,
Payment Obligations (BPO) and ICC
Letter of Credit Related Cases, in and most issuance is subject to the
e-rules developing in China?
2005, issuing banks in China have UCP600 rules, although the shift to
been more cautious about raising ISP98 (widely used on standbys) is Ms Xu: BPO has not yet had a big
discrepancies. picking up. impact in China, there have been
a few transactions. Volumes are
Second, banks in China take great One major development was
low. However, this may change if
care to protect their international the 1 December 2016 decision,
some constraints are removed,
credit status and reputation, which The Supreme People’s Court on
including changes in the product
is why trade finance professionals Some Issues in the Adjudication of
structure, so that URBPO rules
in China operate at the highest Independent Guarantee Related
reflect the business flow. We also
professional standard. Cases. These legal provisions
need e-platforms for easy customer
have boosted the standing
However, almost all the banks access and greater market
of international independent
surveyed in China found confirming acceptance.
undertakings that support secure
banks very cautious, or dare I say
international trade and projects For any set of rules to facilitate
picky with reported rates of refusals
with China. The provisions also refer electronic trade, rules must follow
up to 90%.This is likely driven
to ICC rules of practice. and be consistent with practices as
by fear issuing banks will reject
they evolve.
documents. O’Brien (ICC): Is supply chain
finance (SCF) expanding in China? O’Brien (ICC): How are fintech and
To be frank, the data shows that this
blockchain being applied in the
fear is unfounded. Unfortunately, Ms Xu: SCF is growing fast in the
Chinese market? Has either crossed
this situation does little to Chinese market.
over from niche technology into
underwrite the L/C as a secure way
Mainland China started SCF-based wider application?
to settle international trade, hence
on the factoring model way back in
the unreliable settlement method Ms Xu: Bank are under competitive
1987.
stigma and sharp decline in use as pressure from e-commerce
a result. According to Factors Chain companies, which are providing
International (FCI), China has new channels and opportunities for
O’Brien (ICC): Can you detail short-
overtaken the UK as the world’s corporates and SMEs. Look at the
term trends in demand guarantees
largest factoring market. expansion of Alipay and WeChatPay
and standby L/Cs in China?
in China, which are now household
Interestingly, most banks in China
Ms Xu: In recent years international names for mobile payments from
are unfamiliar with Standard
demand guarantees and standbys taxi fares to peer-to-peer transfers.
Definitions for Techniques of
have risen sharply, driven by the Annual domestic trade of non-bank
Supply Chain Finance, even though
government’s opening up policies payment agencies including these
SCF providers use almost all the
and the Belt and Road Initiative. The two companies was about US$16
techniques, though perhaps with
Belt and Road is a combination of trillion in 2016, more than double
different names.
the Silk Road Economic Belt and the year before, according to
the 21st century Maritime Silk Road. People’s Bank of China.

Banks are adjusting their strategies,
and are focusing on blockchain
technology. Interesting proof of
concept projects are underway in
China, for instance using blockchain
technology for high-volume
factoring and supply chain finance.
Technology-driven finance
offerings must also comply with
regulation and compliance. No
exceptions.
O’Brien (ICC): Can you provide an

update of compliance in China?
Ms Xu: Since last year, the

government has set out stringent
compliance policies for financial
institutions, including measures
for monitoring and supervision of
Vincent O’Brien and Jun XU
money laundering and financial
crime. In trade finance there
is a laser focus on KYC, trade relationships are terminated due to Finance Platform and launched on-
background screening, trade de-risking and cost cutting. line account receivables finance for
finance products reviews and SMEs in cooperation with Bank of
O’Brien (ICC): On the plus side,
issues related to operations and China in several provinces such as
SMEs are a boon to the growth
dedicated advanced technology Sichuan and Jiangsu since 2017.
in global trade. But as you show,
screening systems. Banks will be SMEs face a lot of challenges. In the 2018 Report on the Work of
severely penalized for violating any What initiatives does China have to the Government, Chinese Premier
regulatory requirement. support the internationalisation of Li Keqiang of the State Council
To meet regulatory requirements SMEs? acknowledged these issues and
and internal policies, banks are set out steps to promote inclusive
Ms Xu: It’s abundantly evident SMEs
facing difficulties in KYC and due financing of SMEs to provide
are an engine of economic growth
diligence investigation, due to easier access to affordable finance,
in China. SMEs contribute to every
lack of resources and systems. including trade finance.
share point rise in the trade finance
Even with extreme care, banks are product portfolio. At Bank of China O’Brien (ICC): It is encouraging to
adopting different standards all we are sharpening our focus on see SMEs contribute to the trade
over the world further complicating the needs of SMEs, as is true for expansion of China.
an already challenging situation. the trade finance industry in China.
Unfortunately, transaction Your insights into the emerging
The valuable data from ICC Global
processing slows down, and delay trends and developments in China’s
Trade Finance Surveys helps our
variance can be from one or two trade finance and payments arena
banks to close the trade finance
days up to several days, or even has been most interesting and
gap for SMEs.
months in extreme cases. informative.
The Chinese government is
O’Brien (ICC): Which trade chain Ms Xu: You are most welcome.
addressing the difficulties SMEs
parties are most harmed by these face in gaining access to finance Thank you for visiting Bank of China
measures? and affordable finance. To support in Nanjing.
Ms Xu: The consequences are felt small- and micro-enterprises,
We look forward to welcoming
across the board. But if pressed to the China Banking Regulatory
you and the full ICC Banking
identify who suffers the most, the Commission has set targets for
Commission back to China for the
answer can only be SMEs. SMEs commercial banks to meet in
2019 Annual Meeting of the ICC
are the most vulnerable customers, lending to SMEs.
Banking Commission to be held in
because they are often unable to In April 2017, seven government Beijing.
supply the necessary information agencies including the People’s
on their trading partners. Bank of China introduced Micro
Small- to medium-sized Businesses Account Receivables
banks also suffer ill effects, Finance Special Action Plan (2017-
when correspondent banking 2019). People’s Bank of China has
also set up the Account Receivables

SPOTLIGHT
SINOSURE view/What’s driving China’s galloping growth in trade finance?
SINOSURE view/What’s driving China’s

galloping growth in trade finance?
By Mr. Xinshuang Guo
Mr. Xinshuang Guo is Vice President of SINOSURE and Member of ICC China Executive Board
Amid a transformation of China’s foreign trade

structure, SINOSURE is providing risk coverage as
the country transitions to an innovation-led economy.
As China becomes an ever more other Belt and Road countries from Banks should be aware that to make
powerful economic engine of 2014 to 2016 was over US$3 trillion. sure business develops sustainably
global growth, it stands to reason In 2017, the total volume of imports in Belt and Road regions, country
that China’s trade finance business from and exports to the Belt and risk should be taken into account by
has huge scope for further Road countries rose 17.8%, about using a range of risk management
development. China’s export market 3.6 percentage points higher than tools, including credit insurance.
share grew rapidly to about 13% in average national trade growth.
2017 from 10.4% in 2011. The “New Normal” of
This trade growth has created
It is worth nothing that today China greater needs for financial services China’s Economy
is the world’s largest exporter, a among the Belt and Road countries. China’s foreign trade structure is
place it has held since 2009. It has undergoing transformation and
been the world’s second-largest Trade along the upgrading as the country moves to
importer for the last nine years.
Belt and Road has an innovation-led economy under
its new normal state. As we go
SINOSURE sees five trends driving
exceeded over further in expanding construction of
strong growth and development of
China’s trade finance in the future: US$3 trillion the Belt and Road and International
Industrial Capacity Cooperation,
SINOSURE has made it a priority China’s overseas engineering
The Belt and Road initiative to serve and support construction contract projects and complete set
Since Chinese President Xi Jinping of the Belt and Road by expanding equipment exports, which strikes
first put forth the Belt and Road the scale of its services. From partnerships between domestic
Initiative in 2013, many countries 2014 to 2017, SINOSURE provided and overseas firms and develops
and international organizations export credit insurance and industries and markets in other
have given warm responses and overseas investment insurance to countries.
supports to the initiative. The the Belt and Road regions totaling
initiative is not meant as rhetoric. Both these initiatives represent
US$455 billion, which was more
It represents real work that can be huge development opportunities
than one quarter of SINOSURE’s
seen and felt to bring real benefits for trade finance.
overall business. The total amount
to countries in the region. of finance granted to enterprises Overseas engineering contracts are
The proof is in the growth in trade. with SINOSURE’s support was over the main way Chinese enterprises
Total trade between China and US$100 billion. are going global in recent years:
New overseas engineering

contracts for projects signed in As trade finance develops rapidly the State Council has approved
2017 reached US$265.3 billion, a with foreign banks in China, 13 of these zones, leading to swift
8.7% rise from the previous year. SINOSURE has built business growth of and creative businesses.
relationships with 79 foreign banks,
The development, transformation According to China E-Business
one third of the total banks present
and upgrading of overseas Research Centre, the trade volume
in China at the end of 2017.
engineering contracts has not only of cross-border e-commerce
driven exports of complete set Last November, China announced reached 7.6 trillion yuan in 2017.
equipment and other products, it measures to ease or lift investment
For these reasons, the institution
has boosted demand for financing. restrictions on foreign companies
which will lead China’s trade finance
SINOSURE has always provided in its financial markets. The 20%
market in the future will be the
support to overseas engineering ceiling on ownership of Chinese
one that is the leader in innovative
contract projects and complete commercial banks or asset
products, information technology,
set equipment exports: the insured management companies by a single
and risk management. SINOSURE
amounts stand at US$24 billion in foreign investor was removed;
aims to be the top contender.
2017, an annual growth of around and the 25% cap on total foreign
6.5%. ownership of such companies was
also ended. Moreover, a number
5 million SME customers of landmark measures are to be
launched this year announced by
With about 40 million SME
Chinese President Xi Jinping at
customers in China, 5 million in
the Boao Forum for Asia Annual
trade-related businesses, creating a
Conference 2018, including
large demand of trade finance.
accelerating the opening-up of
As most SMEs lack solvency and the insurance industry, easing Spotlight on SINOSURE
adequate collateral and find it hard restrictions on the establishment
to meet the financing requirements of foreign financial institutions in China Export and Credit
of banks, banks are more willing China and expanding their business Insurance Corporation
to lend to multinational companies scope, and opening up more areas (SINOSURE) is the official Export
and large enterprises. As a result, of cooperation between Chinese Credit Agency (ECA) and the
the finance gap is wide for SMEs and foreign financial markets. These only policy-oriented insurance
and the potential for trade finance changes should stimulate foreign company in China. Since it was
is huge. banks to collaborate more. founded in 2001, SINOSURE has
supported US$3.3 trillion of trade
To help narrow the gap and provide
better services, SINOSURE has E-commerce explodes and investment, and paid more
than US$10 billion in claims to
launched products tailored to Information technology and
banks and enterprises.
SMEs, especially online services, financial innovation are twin
that not only improved work drivers of trade patterns. They are Joining forces with more than
efficiency, but also provided new revolutionizing the way people 200 credit information providers
trading platforms for SMEs to work, live and think. Cross- and recovery channels across the
explore international markets. border e-commerce is boosting globe, SINOSURE’s transaction
China’s trade and is an engine of data covers over 7 million buyers
SMEs contributed US$57 billion in
innovation. As elsewhere, supply and 110,000 banks.
export value in 2017. SINOSURE
chain finance, cross-border
supported 64,000 SME customers, SINOSURE insured and
RMB business, and block chain
representing more than a quarter guaranteed US$524.6 billion
technology are new features and
of SMEs exporters. SINOSURE in 2017, an annual growth rate
trends affecting China’s trade
paid total claims of nearly US$100 of 10.9% for more than 80,000
finance.
million. With the support of customers.
SINOSURE, finance granted to Cross-border e-commerce is
For SINOSURE, banking
SMEs reached US$6.5 billion. developing rapidly in China, and
cooperation is critical. That
its e-industrial trade cluster is
cooperation takes the form
Attracting foreign banks growing ever larger. The Chinese
of support for trade finance
government since 2016 has
Since China joined the WTO in for enterprises through credit
introduced policy measures
2001, more foreign banks have insurance. By the end of 2017,
to promote the healthy and
been entering and expanding in SINOSURE had solid relationships
orderly development of cross-
the Chinese market. By end-2016, with 251 banks, and helped
border e-commerce, setting up
foreign banks from 14 countries and enterprises secure financing of
comprehensive pilot zones for
regions had set up 1,031 branches in over US$470 billion.
cross-border e-commerce. So far,
mainland China.

Acknowledgements
This historic 10th edition of the annual trade
and finance report is the result of a remarkable
collaboration between ICC, ICC Banking Commission
experts and staff, numerous organizations and
individuals who have contributed with leading market
intelligence content and timely production support.
The report was enabled with outstanding guidance
and backing from the Editorial team.
We express our highest survey, enabling us to articulate

appreciation to the considerate and notable current and future
productive helpful Editorial team developments shaping the industry.
lead by:
Extended thanks to the team
• Alexander R. Malaket at PwC Research Honor Mallon,
(OPUS Advisory) Amanda O’Hara and Claire-Louise
Moore and for their admirable
and comprised of:
undertake of data collection and
• Dominic Broom (BNY Mellon) exploration.
• Mark Evans (ANZ) We would also like express our

recognition to the ICC Banking
• Dave Meynell
Commission team Olivier Paul,
(TradeLC Advisory)
David Bischof, Paulina Martinez
• Dan Taylor and Laura Straube, as well as ICC’s
(DLTAYLOR Consulting) Stephen Lloyd, Li Van der Borght
Chen, Jeff Dombrowski, Catherine
• Jun Xu (Bank of China)
Foster, Amanda Skaar, Helene Maïo,
• Vincent O’Brien Sandra Sanchez Nery, Victoria
(ICC Banking Commission) Krapivina, Georgiana Degeratu,
Dana Abdullina, Serena Fiorentini
for their crucial contribution in
and Elene Alphaidze for their
defining the strategic approach and
admirable and timely assistance.
guarding continued relevance and
quality of the trade finance survey We thank our members, sponsors
questions as well as the report at and colleagues in the ICC National
hand. Committees for their valuable
support.
The present report depended
on the support and expertise of Sincere thanks to colleagues
various specialists and partner Moorgate, Zephyr and to Sarah
organisations. We would like to Wachter for the insights and
thank our contributing authors for outstanding contributions to
this edition and our colleagues in the communications, design
partner organisations who have also and editorial elements of this
facilitated these contributions. publication.
We would like to thank our ICC
Global Survey on Trade Finance
and Supply Chain Finance 251
participating banks located in 91
countries for their timely, accurate
and insightful answers to the

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than 600 members, the ICC Banking Used by banking professionals and trade finance experts
Commission – the largest Commission worldwide, ICC Banking Commission publications and market
GLOBAL TRADE
intelligence is the industry’s most reputable and reliable source of
of ICC – has rightly gained a reputation guidance to bankers and practitioners in a broad range of fields.
as the most authoritative voice in the
– SECURING
field of trade finance. DISPUTE RESOLUTION
ICC Banking Commission and ICC International Centre
for Expertise administer the ICC Rules for Documentary
FUTURE GROWTH
Instruments Dispute Resolution Expertise (DOCDEX) to
ICC GLOBAL SURVEY ON TRADE FINANCE

facilitate the rapid settlement of disputes arising in banking.
EDUCATION AND CERTIFICATION

The ICC Academy is the world business organization’s ICC GLOBAL SURVEY ON TRADE FINANCE
ground-breaking e-learning platform. Its industry-relevant
Global Trade Certificate (GTC) provides an extensive
overview of trade finance products and techniques.
SPECIALIZED TRAINING AND EVENTS

In addition to its bi-annual summit gathering 300+ international
Trends in international trade and supply chains
delegates every six months, the ICC Banking Commission
organizes regular seminars and conferences around the world, in Developments in trade financing operations
partnerships with ICC National Committees and other sponsors.
STRATEGIC PARTNERSHIPS Regulation and compliance

Well-established collaboration with leading policymakers and
trade association, including WTO (World Trade Organization),
Digitisation and transformation
ADB (Asian Development Bank), Berne Union, EBRD (European
Bank for Reconstruction and Development), IDB (Inter-American
Development Bank), IFC (International Finance Corporation), IMF
(International Monetary Fund), SWIFT, the World Bank and others.
Tenth Annual Edition

ICC Trade

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ICC GUIDING DRIVING

BANKING INTERNATIONAL CHANGE IN

ICC is the largest, most representative RULES

2018 GLOBAL TRADE – SECURING FUTURE GROWTH

With 85 years of experience and more

ICC GLOBAL SURVEY ON TRADE FINANCE

EDUCATION AND CERTIFICATION

SPECIALIZED TRAINING AND EVENTS

STRATEGIC PARTNERSHIPS Regulation and compliance

Tenth Annual Edition

Printed in May 2018

© 2018, International Chamber of Commerce

Permission can be requested from ICC through mailto:ipmanagement@iccwbo.org

33-43 Avenue du Président Wilson, 75116 Paris, France

ICC Publication No. 890E • ISBN: 978-92-842-0509-7

Visit the ICC Banking Commission website:

Background information Find more online References and notes

2 GLOBAL TRADE – SECURING FUTURE GROWTH

FINANCE FOR TRADE

REGULATION AND COMPLIANCE

3 GLOBAL TRADE – SECURING FUTURE GROWTH

4 GLOBAL TRADE – SECURING FUTURE GROWTH

As the ICC Banking Commission held their Annual Meeting

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Message from the report Chair/

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“We have to get back to basics

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Wrap up of 2018 report/

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investment (FDI), particularly into The scope and range of activity

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16 GLOBAL TRADE – SECURING FUTURE GROWTH

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MAS and the HKMA are Road initiative

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Setting the scene/Roberto Azevêdo, Global trade and supply chains/

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Setting the scene/

Unmet demand for trade finance leads

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US$1.5 of all MSME requests for

24 GLOBAL TRADE – SECURING FUTURE GROWTH

Global economic outlook/

The global economic recovery is hardy by many

25 GLOBAL TRADE – SECURING FUTURE GROWTH

manufacturing activity, and trade.

faster than expected. Global GDP

economic activity through an

recovery is expected to continue

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Cyclical factors are an important -5%

an important role in 2017: -15%

• Investment growth: Capital

goods represent 40 percent

Yet, two structural factors are

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