Participants at the World Economic Forum (WEF) in Davos last week expressed concerns that letter of credit (L/C) business will be under pressure since the euro crisis is forcing a process of deglobalisation.

The problem is rooted in the retrenchment of European banks away from cross-border financing to domestic markets.

Domestic agendas

The head of the European Central Bank (ECB), Mario Draghi, warned WEF delegates that credit in the eurozone remains "seriously impaired" in some areas.

The fearis that the process of Europe's banks withholding credit to strengthen their balance sheets will outweigh the commitment from the Group of 20 industrialised and developing nations (G20) for a global reform agenda.

That agenda calls for the free international movement of capital leading to globalisation, but several banks are now focusing much more on domestic markets.

European fears

These include French banks Société Générale and BNP Paribas, Italy's UniCredit and the UK's largely state-owned Royal Bank of Scotland.

Countries with banking sectors dominated by foreign-owned banks, including several in Central and Eastern Europe, could find credit very much harder to come by.

Globalisation agenda

The G20 announced a multi-billion US dollar support package for trade finance to support globalisation at the April 2009 London summit.

The package spawned several schemes operated by export credit agencies and multilateral development banks to support L/C business.

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