Trade Finance Monitor - BAFT · Nonetheless, some weak banks have large market shares in global...

November

2011

Trade Finance Monitor

International Monetary Fund /

BAFT-IFSA

6th Annual Trade Finance Survey

2

The 6th IMF/BAFT-IFSA Survey

Key Findings and Observations

International Monetary Fund

November 2011

In July 20111 the IMF and BAFT-IFSA initiated their sixth trade finance survey,

administered by the IMF. 63 banks in advanced, emerging market, and developing countries

participated in the survey (Table 1).2

Value of trade finance:

The demand for trade finance was strong particularly in emerging Asia (Figures 1 and

2), partly supported by strong demand for trade activities (Table 2).

This is despite the slowdown in trade volumes observed since the spring (Figures 3

and 4).

Pricing of trade finance:

Interest rate spreads have risen especially since June, particularly in the Euro area

(Figures 5 and 6), but remain below 2008-09 trends. Trade finance spreads have

reportedly risen for the second quarter of 2011 relative to that of 2010 (Figure 7 and

Table 3).

Anecdotal reports show that the trade finance spreads have continued to increase

since July, but no more than those for other types of credit of similar maturity.

Risk perception:

Survey results show no change in risk perception at least till the second quarter of

2011 (Figure 8).

Nonetheless, some weak banks have large market shares in global trade finance and this has

been a source of concerns especially since August (Table 4). Some European banks are

reportedly trimming their balance sheets. But deleveraging does not appear focused

disproportionately on trade finance. Moreover, concerns around tightening liquidity—

especially for dollars—seem to be building. Practitioners are worried that short-term trade

1 The survey was launched in July 2011, with responses collected until end October 2011.

2 The respondents’ samples differ across surveys. The overall change in trade finance is computed as the

weighted average of regional changes by activity level in respective regions.

3

finance could be a ready target for bank deleveraging as happened in late 2008. While the

reactivation of central bank swap lines in August by the ECB and the Swiss National Bank

with the U.S. Federal Reserve seems to have helped ease some dollar-liquidity pressures, the

evidence from some banks in October indicates that the finance has continued to tighten.

Lending standards

Survey results show that banks are tightening lending standards especially larger

banks (Figure 9 and Table 5).

Outlook

Survey results also show the outlook for trade finance demand in the second half of

2011 is less positive than for the first half, especially for advanced countries (Figure

10).

Impact of the Basel III

Survey results also show banks expect negative impact of Basel III on all trade

finance products (Table 6) and the impact is considered larger than those on other

bank products (Table 7).

Banks are also anticipating changes to the trade finance portfolio (Figure 11).

Official sector response

Views on the official sector response continue to be largely positive. Some IFIs have

indicated a readiness for immediate support, if circumstances warrant.

4

I. MAIN SET OF TABLES AND CHARTS

Table 1 Summary of Bank Survey Respondent Characteristics (percent of respondents)

(percent of respondents)

Industrial

countries

Sub-

Saharan

Africa

Emerging

Europe

Southeast

Europe and

Central

Asia

Emerging

Asia incl.

China and

India

Developing

Asia

Middle

East and

the

Maghreb

Latin

AmericaWhere are your trade finance

activities focused56 5 30 32 78 32 27 35

Where is your trade finance

branch33 3 16 16 21 24 11 30

Where is your global

headquarters38 0 3 6 8 17 5 22

Medium banks Large banks (> $100 bn)

Source: IMF/BAFT-IFSA Trade Finance Survey, August 2011.

1/ The total number of respondents is 63.

Table 1. Summary of Respondents 1/

Small banks (< $5 bn)What were your bank's most recent total assets

worldwide 49 37 14

Source: August 2011IMF/BAFT-IFSA Survey.

Figure 1 Overall Change in Merchandise Exports and Trade Finance


-31.2

25.4

-1.9

14.8

-40

-30

-20

-10

0

10

20

30

Q2 CY09 vs. Q2 CY08 Q2 CY10 vs. Q2 CY09

pe

rce

nta

ge c

han

ge

a. October 2010 survey

goods exports trade finance

16.0

24.9

19.317.1

0

5

10

15

20

25

30

Q2 CY10 vs. Q2 CY09 Q2 CY11 vs. Q2 CY10

pe

rce

nta

ge c

han

ge

b. August 2011 survey


Sources: October 2010 and August 2011 IMF/BAFT-IFSA Surveys; Haver Analytics; IFS, and WTO.

Figure 2 Changes in Merchandise Exports and Trade Finance, by Country Group

(percent growth)

0

5

10

15

20

25

30

35

40

45

50

pe

rce

nta

ge c

han

ge

Q2 CY10 vs. Q2 CY09


Industrial Countries

Latin America

Middle East and the

Maghreb

Developing Asia

Emerging Asia incl.

China and

India

Southeast Europe/

Central Asia

EmergingEurope

Sub-Saharan

Africa

0

5

10

15

20

25

30

35

40

45

pe

rce

nta

ge c

han

ge

Q2 CY011 vs. Q2 CY10



Latin AmericaMiddle East

and the Maghreb

Developing AsiaEmerging

Asia incl. China and

India

Southeast Europe/

Central Asia

EmergingEurope

Sub-Saharan

Africa

Sources: August 2011 IMF/BAFT-IFSA Surveys; Haver Analytics; IFS, and WTO.

Table 2 Reasons for Increase in Value of Trade Finance

(percent of respondents) All

banks

Small

banks

Medium

banks

Large

banks

An increase in the demand for trade activities? 94 96 94 89

More credit availability at your own institution? 71 61 81 78

An increase in the price of transactions (e.g., commodity prices)? 60 61 75 33

An increase in credit from international institutions for previously supported transactions?42 52 31 33

More credit availability at your counterparty banks? 40 48 31 33

An increase in support from Export Credit Agencies? 40 26 44 67

A shift away from cash-in-advance transactions? 40 35 50 33

A shift away from open account transactions? 27 17 44 22

Other reasons 23 13 25 44 Source: August 2011IMF/BAFT-IFSA Survey.

6

Figure 3 Merchandise Trade Index

January 2007=100, in U.S. dollars

0

50

100

150

200

250

Ind

ex

(20

07

M1

= 1

00)

Industrial countries

Emerging countries

Developing countries

Sources: Haver Analytics; IFS; and WTO.

Note: Trade data on industrial, emerging, and developing countries are based on 29, 29, and 19

countries reporting to Haver Analytics.

Figure 4 Merchandise Trade Index

January 2007=100, in U.S. dollars

40

60

80

100

120

140

160

180

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul

2007 2008 2009 2010 2011

Ind

ex

(Jan

uar

y 2

00

7 =

10

0)

EM Value EM Volume AM Value AM Volume

Source: CPB Netherlands Bureau of Economic Policy Analysis..

7

Figure 5 Global Funding Pressure

average of Euro Area, U.K., and U.S. rates, by percentage

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

Rat

es,

pe

rce

nta

ge

average 3-month LIBOR

average policy rate

Source: Bloomberg.

Figure 6 Three-Month LIBOR Spreads in Advanced Markets Overnight index swap, in basis points

0

50

100

150

200

250

300

350

400

LIB

OR

sp

read

to

OIS

, b

asis

po

ints

US

UK

Eurozone

Source: Bloomberg.

Note: LIBOR = London interbank offered rate. OIS = overnight indexed swap.

8

Figure 7 Change in Pricing

18

11

16

0

2

4

6

8

10

12

14

16

18

20

Letters of credit

Export credit insurance

Trade-related lending

bas

is p

oin

ts o

ver

cost

of

fun

ds

a. Q2 CY10 vs. Q2 CY09

13

9

21

0

5

10

15

20

25

Letters of credit Export credit

insuranceTrade-related

lendingb

asis

po

ints

ove

r co

st o

f fu

nd

s

b. Q2 CY11 vs. Q2 CY10

Sources: August 2011IMF/BAFT-IFSA Survey.

9

Table 3 Pricing Changes by Size of Bank


All

banks

Small

banks

Medium

banks

Large

banks

All

banks

Small

banks

Medium

banks

Large

banks

Letters of credit

Increased 13 10 22 0 13 10 22 0

No change 70 79 65 56 63 71 61 44

Decreased 16 10 13 44 21 13 17 56

Mean change 1.8 1.8 2.9 -1.7 1.1 0.7 3.5 -6.7

Median change 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Export credit insurance

Increased 3 0 8 0 2 0 0 11

No change 90 100 77 100 43 39 48 44

Decreased 3 0 8 0 3 0 9 0

Mean change -0.4 0.0 -0.9 0.0 -1.7 0.0 -7.7 10.0

Median change 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Trade-related lending

Increased 13 13 9 22 14 13 9 33

No change 48 57 41 33 43 52 39 22

Decreased 13 7 18 22 14 10 17 22

Mean change -6.3 -0.5 -18.6 -1.4 -6.4 -1.8 -22.0 11.4

Median change 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Average across products

Increased 10 8 13 7 10 8 10 15

No change 69 79 61 63 50 54 49 37

Decreased 11 6 13 22 13 8 14 26

Mean change -1.6 0.4 -5.5 -1.0 -2.3 -0.4 -8.7 4.9

Median change 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

a. Q2 CY10 vs. Q2 CY09 b. Q2 CY11 vs. Q2 CY10


Note: Mean figures are percentage point changes in the pricing margin above bank cost of funds.

Mean and median figures do not include responses for which detailed pricing data were not provided.

Figure 8 Change in the Probability of Default


16 13

7170

1317

0

10

20

30

40

50

60

70

80

90

100

a. Q2 CY10 vs. Q2 CY09 b. Q2 CY11 vs. Q2 CY10

pe

rce

nta

ge o

f re

spo

nd

ent

s

Decreased

No change

Increased


Table 4 Global Trade Finance Loans (incl. sole bank loans): First Nine Months 2011

Arranger Value

($ m)

Equity

(% ) BBVA 6,166 -15.3

China Development Bank Corp 4,575 n.a.

Credit Agricole CIB 4,396 -45.1

HSBC 4,259 -20.4

BNP Paribas 4,218 -32.7

ING 3,995 -20.8

Citi 3,722 -44.6

SocGen CIB 3,341 -48.4

Deutsche Bank 2,919 -30.2

UniCredit 2,522 -35.2

Total 74,923 Source: Bloomberg, Dealogic, and Fund staff estimates.

Note: Off-balance sheet products (e.g., LoC) are not included.

11

Figure 9 Overall Change in Trade-Related Lending Guidelines, Q2 CY10 vs. Q2 CY091


48

33

88

48

52

134

14

0

10

20

30

40

50

60

70

80

90

100

Small banks Medium banks Large banks

pe

rce

nta

ge o

f re

spo

nd

ent

s

Loosened

No change

Tightened


Table 5 Reasons for Tightening Trade-Related Lending Guidelines (percent of respondents)

All banksSmall

banks

Medium

banks

Large

banks

Become more cautious with certain countries 65 50 86 71

Become more cautious with certain sectors 58 67 43 57

Requested shorter tenors 54 42 43 86Requested more collaterals (including equity

contributions and cash deposits)50 42 57 57

Faced more regulatory controls 46 50 29 57Requested more documentary collection or LC (including

standby LC and confirmed LC)38 42 43 29

Requested stronger covenants 35 33 43 29

Requested more Export Credit Insurance 27 8 71 14

Other 4 0 0 14 Source: August 2011IMF/BAFT-IFSA Survey.

Note: LC = letter of credit.

12

Figure 10 Actual and Outlook for Trade Finance in 2011, by Groups of Countries

(percent of respondents indicating “improvement”)

0

10

20

30

40

50

60

70

80

90

100


Sub-Sahara Africa

Emerging Europe

Southeast Europe and

Central Asia

Emerging Asia incl.

China and India

Developing Asia

Middle East and the

Maghreb

Latin America

pe

rce

nt

of

resp

on

de

nts

2011H1 Actual

2011H2 outlook


Table 6 Impact of Basel III: by Trade Finance Products (percent of respondents)

Letters of

credit

Export

credit

insurance

Trade-

related

lending

Letters of

credit

Export

credit

insurance

Trade-

related

lending

Largely positive 2 5 3 2 2 4

Positive 10 11 10 11 7 15

Neutral 27 31 27 24 19 20

Negative 24 12 19 22 12 22

Largely negative 10 3 8 13 2 2

Not sure 28 38 34 29 57 37

a. October 2010 Survey b. August 2011 Survey

Sources: October 2010 and August 2011 IMF/BAFT-IFSA Surveys

13

Table 7 Negative Impact of Basel III: Trade Finance Relative to Other Bank Products


All banks

Small

banks

Medium

banks

Large

banks All banks

Small

banks

Medium

banks

Large

banks

Net Response 28 3 22 51 29 16 26 78

Strongly Agree 11 10 6 14 11 6 13 22

Agree 32 10 22 54 27 19 26 56

Disagree 13 17 6 14 10 10 13 0

Strongly Disagree 1 0 0 3 0 0 0 0

Not sure 43 62 67 14 52 65 48 22



Note: Net response is defined as the sum of those that “strongly agree” and “agree” minus the

sum of “disagree” and “strongly disagree.”

Figure 11 Impact of Basel III: Possible Changes to Trade Finance Portfolio


211

4442

35

67

1819

20

1136 3845

11

0

10

20

30

40

50

60

70

80

90

100

All banks Small banks Medium banks Large banks

pe

rce

nta

ge o

f re

spo

nd

ent

s Not sure

To no extent

To some extent

To a large extent


14

II. ADDITIONAL TABLES AND CHARTS

Table A1. Reasons for the Increase in Prices


All

banks

Small

banks

Medium

banks

Large

banks

All

banks

Small

banks

Medium

banks

Large

banks

Own institution's increased cost of funds 53 57 67 43 34 24 38 50

Increased risk of trade finance products

relative to other working capital lending to the

same nonfinancial corporate borrowers

59 71 33 57 10 10 14 0

Increased capital requirements 47 43 0 71 24 19 29 25

Other 6 0 0 14 8 5 5 25


Sources: October 2010 and August 2011IMF/BAFT-IFSA Surveys.

Note: Data reflect only the views of respondents that reported an increase in pricing and that

subsequently answered this question.

Table A2. Impact of Basel II on Trade Finance Availability


All banks

Small

banks

Medium

banks

Large

banks All banks

Small

banks

Medium

banks

Large

banks

Largely positive 50 67 0 0 0 0 0 0

Positive 0 0 0 0 10 0 0 100

Neutral 0 0 0 0 60 50 80 0

Negative 50 33 0 100 20 25 20 0

Largely negative 0 0 0 0 0 0 0 0

Other 0 0 0 0 10 25 0 0


Source: October 2010 and August 2011IMF/BAFT-IFSA Surveys.

Note: Includes only respondents reporting price increases due to increased capital requirements and

that subsequently marked at least one option for the question.

Table A3. Reasons for the Adverse Impact of Changes in the CCF


All

banks

Small

banks

Medium

banks

Large

banks

All

banks

Small

banks

Medium

banks

Large

banks

Costs for trade finance products will increase92 100 100 88 96 88 100 100

The amount of trade finance products offered

will decrease32 33 20 33 50 38 56 57

Alternatives such as credit insurance (etc.) will

be offered24 0 20 33 38 0 44 71

Don't know 8 0 0 13 0 0 0 0

Other 3 0 0 4 4 0 0 14


Source: October 2010 and August 2011IMF/BAFT-IFSA Surveys.

Note: Includes only respondents reporting negative impact of the change in CCF.

15

Figure A1. Ability to Satisfy “All Customer Needs”


79 77

86

67

21 23

14

33

0

10

20

30

40

50

60

70

80

90

100

All banks Small banks Medium banks Large banks

pe

rce

nta

ge o

f re

spo

nd

ent

s To no extent

To some extent

To a large extent


Figure A2. Estimated Composition of the Trade Finance Industry


27 27 27

45 47 47

28 27 26

0

10

20

30

40

50

60

70

80

90

100

Q2 CY09 Q2 CY10 Q2 CY11

pe

rce

nta

ge o

f re

spo

nd

ent

s

Open account transactions

Bank-intermediated transactions

Cash-in-advance transactions


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