2013 - ICC India

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18ICC BANKING COMMISSION | 2013 GLOBAL RISKS TRADE FINANCE | ANALYSIS OF SHORT-TERM PRODUCTSFIGURE 12Variance in transaction-level default rates across banks byproduct, 2008-11%0.09%0.08%0.07%0.06%0.05%0.04%0.03%0.02%0.01%0.00%Import L/CsExportconfirmed L/CsLoans for importLoans for export:Bank riskLoans for export:Corporate riskPerformanceguaranteesIQ RangeMedianMax 0.12% 1.97% 1.62% 0.33% 0.15% 0.15%Min 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%As figure 12 demonstrates, the vast majority of banks are clustered between0% and 0.1% default rates across all products. Furthermore, the interquartileranges are small, indicating that the variability in default rates is extremelylow. We observe some high maximum figures within the sample, but theseare not the same bank across products and specific countries drive thehigher default rates in specific years. Therefore, we would hypothesisethat the cause of these outliers is specific to the counterparty in each case,rather than due to consistent bank operational failures.
ICC BANKING COMMISSION | 2013 GLOBAL RISKS TRADE FINANCE | ANALYSIS OF SHORT-TERM PRODUCTS 193.1.2. Variability of default rates across the economic cycleAnother potentially important driver of default behaviour for trade financeproducts is macroeconomic trends. First, we compare transactions wherethe counterparty is located in a country in recession 16 to those in a countryexperiencing positive growth. Figure 13 compares this across products.FIGURE 13Proportion of transactions defaulting for growingcountries versus countries in recession, 2008-11%0.09%0.08%0.07%0.06%0.05%0.04%0.03%0.02%0.01%0.00%Import L/CsExportconfirmed L/CsLoans for importLoans for export:Bank riskLoans for export:Corporate riskPerformanceguaranteesRecessionNo recessionFor a majority of products the default rate for countries in recessionis higher, as might be expected 17 . As a country experiences recession,counterparties within it become less liquid and so the likelihood of late ornon-payment of loans increases, as does the likelihood of them failing tofulfil their obligations on L/C or guarantee covered transactions.Another way to infer whether macro-economic development impactsdefault characteristics is provided by a time series analysis. Indeed weobserve higher default rates in 2008-2009 compared wtih 2010-2011 as thefollowing graph shows. This could be driven by a combination of negativeGDP growth in many countries and difficulties for banks and corporates inaccessing short term lending to fulfil trade finance obligations due to thefinancial turmoil at the time.
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2013 - ICC India

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