Default rates for both export and import letters of credit (L/Cs) decreased in 2021 compared with 2020 according to a new report produced by the International Chamber of Commerce (ICC) in partnership with Global Credit Data (GCD) and Boston Consulting Group (BCG).

Widely seen as the global authoritative source of trade default rates across all asset classes, the ICC 2022 Trade Register Report also confirmed that credit risk in all types of trade, supply chain and export finance has fallen back to pre-pandemic levels.

Overall picture

Following the impact of the Covid pandemic in 2020 on trade volumes, 2021 reaffirmed the resilience of global trade with a strong and better than expected return to growth, with total trade flows reaching nearly 20 per cent above pre-pandemic levels according to the report.

It says that this recovery in global trade, as well as its consistent growth over the last three decades, has been clearly supported by trade finance products that offer liquidity and risk mitigation solutions for importers and exporters, allowing them to transact with confidence across borders.

Decreased L/C risk

Obligor-weighted default rate for import L/Cs decreased from 0.64 per cent in 2020 to 0.29 per cent in 2021, a reduction of 0.35 per cent according to this year's Trade Register.

It reports that the obligor-weighted default rate for export L/Cs decreased from 0.06 per cent in 2020 to 0.05 per cent in 2021, a reduction of 0.01 per cent.

Other products

This year's report says the obligor-weighted default rate for import/export loans decreased by 0.49 per cent in 2021 compared with 2020. Similarly defined default rate decreases are also reported for performance guarantees which fell by 0.23 per cent while the rates for defaults on supply chain finance reduced by 0.87 per cent and by 0.04 per cent on export finance.

Despite the current macroeconomic uncertainty, BCG expects global goods trade to continue to grow at a further 5.6 per cent compound annual growth rate over the next 10 years on a nominal basis, and 2.3 per cent in real terms.

Further details on and a link to the full ICC 2022 Trade Register Report can be found here.

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