Structured Trade Finance books

REBUILDING TRUST IN TRADE

Trade finance is stabilizing, but caution is the watchword in an industry still reeling from the effects of the financial crisis.

By Anita Hawser

Throughout the financial crisis, trade finance, that unglamorous function within a bank that is often assigned to some operational backwater, really came into its own. Suddenly, political heavyweights like US treasury secretary Timothy Geithner were concerning themselves with the “plumbing” that supports the global trade system. “Last year at the G-20 summit in London when [French president] Nicolas Sarkozy and [US president] Barack Obama spoke about trade finance, they may not have known what it really was, ” remarks Kamel Alzarka, chairman of Falcon Group, which facilitates trade in emerging markets. “However, they realized that trade finance is the lifeblood of the economy.”

At that summit, political leaders pledged $250 billion to boost trade. Although the crisis started in the financial sector, it had a knock-on effect on global trade. Ashutosh Kumar, global head of trade product management at Standard Chartered, says that in 2009 trade volumes declined between 12% and 15%. The decline in trade was attributed to a number of factors, including falling consumer demand, increased protectionism and a lack of credit or trade finance, with World Bank president Robert Zoellick estimating trade financing issues contributed to as much as 15% of the decline in trade.

According to a March 2009 report, Rethinking Trade Finance, published by the International Chamber of Commerce (ICC), approximately 50% of companies surveyed said trade credit lines available from banks had declined between the end of 2007 and the end of 2008. Four in 10 said they faced an increase in fees for commercial letters of credit (LCs), standbys and guarantees. “During the crisis, many export-orientated companies were unable to raise—or had to pay considerably more for—finance for their own working capital needs even if they did have relationships with a large number of banks or, in the case of SMEs, just one or two providers, ” says James Pumphrey, director of Deutsche Bank’s structured trade and export finance team.