Trade Services
What do new capital rules mean for trade finance?
Trade boutique specialist, Falcon Group, claims that new capital requirements and regulations as well as the growth in south-south trade has resulted in some tightening of credit from traditional trade finance banks.With new capital rules announced under Basel III for the banks and other planned regulatory changes, what impact is likely to have on banks' trade finance business.
The Bankers' Association for Finance and Trade (BAFT-IFSA) has lobbied on behalf of the banks for some time against unfavourable capital treatment of short-term trade finance loans under Basel III. Our understanding is that they have been granted some concessions, however concerns remain.
But there is no question that new Tier 1 capital requirements for banks under Basel III and other regulatory measures are likely to impact banks' willingness to lend, and although banks have historically looked favourably on trade finance, as it is short-term working capital which is being used for a specific purpose, some believe this business is waning in appeal for some banks.
In a forthcoming article in financial-i's Trade & Supply Chain handbook, due to be published later this month, Kamel Alzarka, chairman of trade finance boutique specialist, Falcon Group, says falling consumer demand in the west; the growth of south-south trade; a lack of available credit from traditional banks due to shrinking balance sheets, proposed regulatory changes and political pressure for banks to support domestic OECD lending, are "reframing" the trade finance market".
He says this paves the way for independent providers to step in and increase their market share as he claims they have a better appetite for non-OECD credits and the local market knowledge required to support south-south trade flows.
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Date Posted:14th September 2010