The International Chamber of Commerce (ICC) has published interim findings from its Trade Register on the performance of short-term trade and supply chain finance assets from 2019 and 2020.

Working with the Boston Consulting Group and Global Credit Data, preliminary analysis of the data for these assets has identified an increase in defaults across most trade finance products in 2020, including import and export letters of credit (L/Cs).

Preliminary data

The increase in defaults is likely at least in part attributable to the effects of the coronavirus pandemic on economic activity.

While 2020 default rates are higher than recent years, they are not significantly out of line with the average default rates reported by the Trade Register over the 14-year period for which data has been collected.

The ICC says the headline findings it is now reporting are based on an initial analysis of a partial data set and should be treated with a degree of caution until the publication in early September 2021 of the final ICC Trade Register report in which the performance of trade assets in 2020 will be verified and explored in detail.

L/C default rates

Preliminary data reveals that default rates for import L/Cs increased in 2020, with default rates apparently skewed towards small- and medium-sized enterprises. Obligor-weighted default rates overall rose by 40-50 per cent compared with the previous year, compared with more modest rises for transaction- and exposure-weighted default rates.

An increase in default rates for export L/Cs is also observed against previous years, although default rates for export L/Cs continue to remain very low relative to other trade finance products.

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