The International Chamber of Commerce (ICC) has released its 2019 Trade Register Report, revealing that default rates for letters of credit (L/Cs) are a little lower than those recorded in the 2018 report.

The 2019 report once more highlights the low-risk nature of trade finance and also examines the coronavirus pandemic's potential to disrupt global trade.

The report captures a full decade of trade finance-related data - containing nearly US$16 trillion of exposures from 32 million transactions across six products and 25 banks worldwide.

Comparisons

Results indicate that default rates for trade finance products over an eleven year period are low across all products and regions, averaging 0.36 per cent for import L/Cs, 0.04 per cent for export L/Cs, 0.73 per cent for loans for import/export, and 0.45 per cent for performance guarantees.

Last year the 2018 Trade Register Report said default rates over an eleven year period across all products and regions, averaged 0.37 per cent for import L/Cs, 0.05 per cent for export L/Cs, 0.76 per cent for loans for import/export, and 0.47 per cent for performance guarantees.

According to the ICC report, these results are broadly in line with the decline in risk seen in 2017 into 2018, likely driven by strong GDP growth and the increased use of open account products.

Coronavirus impact

ICC partnered with Boston Consulting Group (BCG) to model scenarios around the potential impact of the coronavirus crisis on trade.

While the ultimate impact of the virus will depend on the scale and duration of the pandemic itself, BCG in the report assesses scenarios in which global trade could fall by anywhere between 11 per cent and 30 per cent in 2020.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.