2013 - ICC India

ICC BANKING COMMISSION | 2013 GLOBAL RISKS TRADE FINANCE | ANALYSIS OF SHORT-TERM PRODUCTS 153. ANALYSIS OF SHORT-TERMTRADE FINANCE PRODUCTSIn analysing the Trade Register data for short-term trade finance products,our aim is to examine whether there is evidence that trade financeinstruments are comparatively low risk products. We have broken downthe overall question into a set of more directly observable questions on thehypothesised main characteristics of trade finance products:■ ■ Low default rate■ ■ Short economic maturity 11■ ■ Low conversion rate■ ■ Low defaulted transaction-level economic loss rate■ ■ Low overall expected lossThe challenges of data gathering make it difficult to definitively prove all ofthese hypotheses. However, the data available provides a strong foundationfor assessing the probability of default and maturity and we are able tomake some descriptive and inferred solutions for other hypotheses.8,133,031Total transactions2008-111,746Number defaulted2008-110.021%Percentage defaulted2008-113.1. TRADE FINANCE INSTRUMENTS HAVE A LOWDEFAULT RATEExamining the default rate, the Trade Register provides strong evidencethat short-term trade finance products do indeed have a low likelihood ofdefault. Across 2008-2011, we observe the following 8.1 million transactions(see the appendix for reconciliation with last year’s sample).The data shows that across nearly 8.1 million short-term trade financetransactions, fewer than 1,800 defaulted. This equates to an approximate0.02% default rate on a transaction basis. Furthermore, the likelihood ofdefault is consistently low across products, with transaction default rates of0.035% or less for all.FIGURE 9Transaction numbers and default levels by product, 2008-11TOTAL 2008-11 # TRANSACTIONS # DEFAULTED % DEFAULTEDImport L/Cs 1,492,447 299 0.020%Export Confirmed L/Cs 293,313 47 0.016%Loans for Import 1,912,118 299 0.016%Loans for Export: Bank risk 1,085,758 319 0.029%Loans for Export: Corporate risk 2,739,475 574 0.021%Performance Guarantees 609,920 208 0.034%Total 8,133,031 1,746 0.021%