A survey by the International Chamber of Commerce (ICC) Banking Commission released on September 29 cites compliance as a chief barrier to trade finance. Nearly 46% of the banks surveyed terminated correspondent relationships due to the cost or complexity of compliance, while 70% of respondents reported declining transactions due to AML/KYC (anti-money laundering/know your customer) requirements.

 

Furthermore, the percentage of respondents citing anti-financial crimes compliance requirements as a significant impediment to trade finance has increased from 69% last year, to 80% in this year’s survey. This trend is expected to continue, as 93% of respondents expect compliance requirements to increase during 2015.

 

The survey received 482 responses from 112 countries around the world and showed that SMEs account for nearly 53% of all rejected trade finance transactions. By contrast, 79% of the trade finance transactions for larger corporates are accepted.

 

Vincent O’Brien, chair of the ICC Banking Commission Market Intelligence, says this year’s survey highlights the severity the severity of the trade finance gap – which continues to be impacted by regulation, despite the low-risk nature of trade finance – and particularly its impact on SMEs. This is crucial given SMEs constitute over 95% of all firms and account for approximately 60% of employment worldwide.” 

 

The results from the survey do also show some positive trends in trade finance. Around 63% of respondents reported an increase in overall trade finance activity, with 61% of banks stating they have increased their capacity to meet trade finance. What’s more, 25% of respondents to the survey on trade finance consider trade instruments supporting trade as involving more than 75% less inherent risk than conventional lending.

 

The results from the survey also reflected positively on export finance, with 79% of respondents in the industry claiming it remains a profitable business. The industry likewise observed a significant decrease in pricing, and even more so, fees in 2014.

 

“While the trade finance industry is certainly facing challenges, and the trade finance gap is a clear issue, the results from the Global Survey on trade finance show that it is not all doom and gloom,” says O’Brien. “The financial landscape is recognizing the importance of trade and, in addition to banks stating they have increased capacity to meet trade finance, we have an array of alternative lenders – such as specialist financiers, export credit agencies and multilateral development banks – stepping up to fill the trade finance gap.”