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The ICC Banking Commission has been advising the World Bank and the World Trade Organization about the state of the trade finance market during the crisis. The Commission has conducted two surveys of banks worldwide (see lead story in this issue), one before the G20 meeting in Italy in the Spring of 2009, the second before the G20 meeting in Pittsburgh, USA in September. Following are excerpts from this last Interim Report.

- "Evidence shows that the full impact of the financial crisis was felt in 2008 and in the first half of 2009, with the most detrimental effects still impacting emerging markets. Although there are signs of recovery ... the world economy remains in recession which has worsened in some areas.

- Many respondents to the Interim Survey asserted that we need to caution against excessive optimism and recognize that the few signs of recovery are not strong enough to conclude that the global recession is receding. The findings for the first half of 2009 point to the fact that some major risks still remain and that the economic recovery will continue to be on shaky ground in the coming months.

Supply of trade finance and corporate demand

- In contrast to the same period last year, demand for trade finance has been increasing in the first half of 2009, with supply improving at the same time. Some 67 per cent of ICC respondents indicated that transaction volumes had either remained the same or had improved in the first half of 2009. Still, evidence collected on a regional basis shows that some sectors of the industry have been differently impacted by the crisis, i.e., major trade finance banks in the London market still report declines in traditional volume in the range of 10 to 30 per cent.

- At the same time, corporate demand for traditional trade products was sustained in the first half of 2009, with 78 per cent of respondents indicating that demand has remained the same or increased. This figure corroborates anecdotal evidence indicating that the situation is improving worldwide for both imports and exports compared with the same period in 2008. The comments received also indicated that the demand for the confirmation of L/Cs is still strong. The trend for exporters to move from open account to traditional trade products prevails.

- At the present time, there is evidence that the market for trade finance is fairly open. In general, evidence suggests that the ability of banks to provide trade credit has improved since the start of 2009, broadly reflecting enhanced capacity (and liquidity) in the banking sector as a whole. However, many respondents still reported impaired credit and capital availability at their own institutions and/or at counterparty banks, albeit to varying degrees. This is particularly true in developing/emerging markets in which risk appetites remain low.

Pricing of trade finance credit

- The pricing of trade instruments remained high in the first half of 2009, despite a tendency to stabilize in Q2. Some banks, however, reported further increases in pricing relative to Q4 2008 - typically of around 50 to 100 basis points. Nonetheless, some 87 per cent of respondents concluded that trade finance was perceived to be an affordable solution for both lenders and borrowers...

- Evidence collected still shows increased country risk and capital management costs in some regions, leading to the high price of trade finance products. There are particular concerns about the cost of export credit insurance, the price for which increased in early 2009. This is likely to be a particular problem for SMEs.

- In conclusion, there is clear evidence of a general softening in price increases for trade instruments, though pricing remains relatively high for some products and some risks. The trend to counterparty risk aversion, which previously resulted in significantly higher risk pricing in 2008 (confirmation commission/discounting etc.), is not expected to prevail in coming months as the markets show signs of recovery."