An April survey by the US Federal Reserve has revealed that most banks have tightened the conditions under which they will provide international trade finance, including letters of credit (L/Cs).

The Loan Officer Opinion Survey on Bank Lending Practices for April covers the supply of, and demand for, loans to businesses and households over the previous three months.

Banks surveyed

Questions about international trade finance in the survey were asked of both US and foreign banks.

The banks surveyed typically provided trade finance services consisting of L/Cs and overdraft facilities.

Tightened conditions

About 60 per cent of US banks and nearly 45 per cent of the foreign banks that provided international trade finance reported tightening standards or terms over the previous six months.

Over 80 per cent of domestic banks that reported having tightened standards or terms cited a range of reasons for their outlook.

Reasons for pessimism

These included a less favourable or more uncertain economic outlook abroad, increased concern about foreign country risk, worsening industry-specific problems, reduced tolerance for risk and a less favourable or more uncertain economic outlook in the US.

About 70 per cent of domestic banks and about 10 per cent of foreign banks said they had experienced weaker demand for trade credit over the previous six months.

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