Data from the International Chamber of Commerce's (ICC's) Trade Register shows how low risk trade finance is in relation to comparable asset classes, such as corporate and small to medium-sized enterprise (SME) lending.

Within the range of trade finance offerings, letters of credit (L/Cs) are particularly low risk.

Low risk L/Cs

The Trade Register highlights that short-term products are particularly low risk, citing the default rate (weighted by exposure) at 0.08 per cent for import L/Cs and 0.04 per cent for export L/Cs.

The default rate for loans for import and export is 0.21 per cent and 0.19 per cent for performance guarantees.

Corporate finance has a similar risk profile with a default rate of 0.20 per cent while SME lending appears much riskier with a default rate of 0.50 per cent.

Longer-term risks

Medium- and long-term trade finance offerings are also low risk for banks according to the ICC.

The average default rate of medium and long-term trade finance is 0.44 per cent compared with 0.96 per cent for corporate finance the Trade Register says.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.