New measures on trade finance are also believed to have a serious effect on global trade. Karen Fawcett, head of transaction banking at Standard Chartered Bank, told a panel at Sibos that “we could see a 2% fall in global trade and a 0.5% fall in global GDP.” This mainly comes from the higher cost of doing trade finance which will arise with changes to the credit conversion factor, when banks will have to account for 100% of their trade assets on their balance sheets as opposed to 20% in the past. According to John Ahearn, the head of trade finance at Citi, pricing for trade finance will go up 40% to 60%.
January 05, 2011 | -With Basel III closer to final formulation but nearly a decade away from full implementation, estimations on its impact vary greatly: the Bank for International Settlements’ (BIS) claims that if the new capital standard are phased in over eight years, the impact in 2018 would be a maximum decline in GDP of 0.22%. The International Institute of Finance reckons differently, saying that new regulations for banks, of which Basel III is the main component, would impact GDP 0.6 % every year between 2011 and 2015.
New measures on trade finance are also believed to have a serious effect on global trade. Karen Fawcett, head of transaction banking at Standard Chartered Bank, told a panel at Sibos that “we could see a 2% fall in global trade and a 0.5% fall in global GDP.” This mainly comes from the higher cost of doing trade finance which will arise with changes to the credit conversion factor, when banks will have to account for 100% of their trade assets on their balance sheets as opposed to 20% in the past. According to John Ahearn, the head of trade finance at Citi, pricing for trade finance will go up 40% to 60%.
With so much emphasis on trade for economic growth in Asia, this will hit the region hard as so much of its growth is trade-related. China has hitched its star to trade and now has free trade agreements with15 countries in the Asia Pacific region, and HSBC predicts that intra-Asia trade will grow at an annual average rate of 12.2% for at least the next eight years. According to Credit Suisse, intra-Asia trade is now 47.1%, up from 44% in 2003.
“The trade finance story is a worry, because of the impact it might have on lending capabilities in the trade finance space,” says Andrew Long. “Short-term working capital assets that we know turn over quickly, that we know get repaid, with a very low history of default, that track record has not been factored into the equation by the regulators.”
Long notes estimates that...
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