The International Chamber of Commerce (ICC) Banking Commission has released its 2015 Trade Register, which illustrates the favourable risk profile of letters of credit (L/Cs) and trade finance compared with other investment grade offerings.

Now in its fifth year, the Trade Register includes 13 million transactions from 2007-14, and encompasses a total exposure of over US$7.6 trillion.

Average risk

The register shows that short term trade finance has default rates that only reach, on average, one fifth of comparable Moody's default rates.

The rating agency's default rate across 2008-14 in the investment grade rating universe was 0.11%.

Trade finance risk

By comparison, the Trade Register shows that the exposure weighted default rate for export L/Cs was 0.02% over the same period, and the transaction default rate for export L/Cs was as low as 0.01%.

Even the default rate for short term loans for import and export transactions, which is the highest across any of the trade finance products, was 0.06% according to the register.

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