The International Chamber of Commerce’s (ICC) 11th annual Global Survey on Trade Finance reveals that banks are optimistic about the evolving nature of trade finance, though unsurprisingly expect various industry-wide challenges and disruption as a result of the COVID-19 pandemic.
The 2020 ICC Global Survey report – recognised as the world’s most authoritative review of the trade finance industry – has been released based on exclusive information from nearly 350 respondents in more than 80 countries, bolstered by nuanced contributions from an international array of experts from the Asian Development Bank (ADB), AUSTRAC, Boston Consulting Group (BCG), Coriolis Technologies, HSBC, Kountable, SWIFT and TXF. Survey responses and accompanying commentary continue to reflect evolution and greater receptiveness to innovation in the financing of international trade, whether through traditional techniques or emerging mechanisms in Supply Chain Finance (SCF).
The underlying optimism reflected in past surveys is evidenced again this year, as are key topics and areas of global industry focus. SCF and digital trade are confirmed as key growth priorities for banks, with 86% and 84% of respective respondents calling them an ‘immediate or near-future priority’. However, there is a divide between global and non-global banks on their supply chain finance offerings and investments in digitalisation. Some 64% of global banks surveyed currently offer SCF platforms, compared to just 13% of local banks and 38% of regional banks. Similarly, while 83% of global banks have a digital strategy, only 46% of local banks report having one – highlighting a growing gap between players of different scale and reach.
Other topics are also gaining traction with participants – such as sustainability and financial inclusion, whereby some 67% of respondents indicated that their bank now has a sustainability strategy. What’s more, the majority of banks surveyed are also integrating sustainability risks into their credit risk management procedures. In terms of ongoing challenges, banks of all sizes remain concerned by the obstacles to their trade finance businesses’ growth posed by regulation and compliance policies, with 56% indicating ‘significant concern’ regarding regulatory requirements.
Assessing the impact of COVID-19
Meanwhile, to quantify the likely impact of the pandemic on the trade finance industry, the report contains results from two additional projects. The first is analysis from BCG to model scenarios on how COVID-19 could disrupt trade, suggesting that trade flow values could fall by anywhere between 11% and 30% in 2020. Findings also indicate that the longer any lockdowns persist, the more severe the global and systemic impact will be, as businesses of all sizes – domestic and international in nature – fight to meet financial and commercial obligations and to remain viable.
ICC also conducted a supplementary COVID-19 survey to understand banks’ sentiment regarding the initial impact of the pandemic on trade finance, with banks across geographies reporting an average 0-10% decrease in their trade flows in the first quarter of 2020, and most expecting at least a 20-30% decline for the full year. In addition, results from the survey reveal that many of the participating banks are supporting their customers during the crisis by extending financing terms, enhancing their digital offerings, and some even relaxing internal policies on original documentation rules. Despite today’s challenging atmosphere, banks around the world are generally optimistic. Even in the initial, highly disruptive stages of the global COVID-19 crisis, trade finance has remained available and accessible. In turn, the Global Survey confirms and reinforces trade finance’s resilient character and adaptability.
Alexander Malaket, Chair of the ICC Global Survey on Trade Finance, notes: “Trade is fundamentally important to global economic health, growth and development, and is even more critical in times of crisis. The ICC Global Survey provides robust data, candid responses and solid analytical content to help shape strategic decisions, inform policy and underpin crucial international dialogue. This latest edition of the report makes an important contribution to raising the quality and thoughtful character of the discourse on international trade and trade financing.”
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