Doha Banking, 26 March 2012

On 26 March, ICC brought together a selected number of senior bankers, business leaders and policy makers from the trade finance industry to deliberate on the current global economic outlook, trade finance market constraints, new financial regulations and other issues on the G20 agenda.

The Doha Banking consultation is part of a larger initiative. ICC's G20 CEO Advisory Group is hosting a series of regional policy consultations, designed to provide local businesses with an opportunity to help shape ICC's policy recommendations for input into the G20 process.

Agenda

Participants were invited to share views and to provide feedback with regard to the global economic outlook, providing an accurate snapshot of trends prevailing in the markets and future expectations for global trade. Particular focus was given to the new financial regulations known as Basel III, along with other regulatory issues impacting the industry.

Participants

The meeting was co-hosted by Sheikh Khalifa Al Thani, Chairman of ICC Qatar and Qatar Chamber of Commerce and Industry; Jean-Guy Carrier, ICC Secretary General and Tan Kah Chye, Chairman of the ICC Banking Commission.

Key participants included: Henri d'Ambrieres, Global Head Origination, Export & Trade Finance, Crédit Agricole Corporate and Investment Bank; Steven Beck, Head, Trade Finance, Asian Development Bank; Rakesh Bhatia, Global Head of Trade and Supply Chain, HSBC; André Casterman, Head of Cash, Trade and Supply Chain, SWIFT; Ashutosh Kumar, Managing Director, Transaction Banking,Global Head of Corporate Cash & Trade, Product Management, Standard Chartered Bank; Christof Gabriel Maetze, Member of the Executive Management Board, Financial Institutions, Commerzbank AG; Craig Polkinghorne, Global Head and Director, Structured Trade and Commodity Finance, Corporate and Investment Banking; Vincent O’Brien, ICC Chair, Market Intelligence Group; Michael Quinn, Managing Director, Global Trade Product Management Executive, JP Morgan Chase; Jean-Paul Riolacci, Head of Capital and Credit Management,Global Transaction Banking, C.I.B Structured Finance; Daniel Schmand, Head of Trade Finance and Cash Management Corporates EMEA, Global Transaction Banking (GTB), Deutsche Bank; Dan Taylor, Vice-Chair, ICC Banking Commission, Executive Director, TSS Global Market Infrastructures, JPMorgan; John Turnbull, General Manager, Global Head of Structured Trade & Commodity, SMBC Group; Hugo Verschoren, Senior Product Manager, ING Commercial Banking, Trade Finance Services; Yanling Zhang, Chairman, Bank of China Aviation Private Limited; Shozo Wakabayashi, General Manager, Doha Office, The Bank of Tokyo-Mitsubishi UFJ, Ltd.; Guosheng Wang, Chief Product Specialist, Corporate Banking, Bank of China Head Office.

Outcomes

Participants were invited to provide their perspectives on the state of the market and its volatility, resulting in several conclusions.

  • Financial markets will be again an important agenda topic for the G20 summit in Mexico. In particular, topics such as financial inclusion and how the financial market can be made more stable. Experts called on the G20 to address Trade Finance, which remains a critical omission on their agenda. The experts noted that there is still a clear lack of understanding of the trade finance industry and its role in underwriting global trade flows, not only among regulators, but also politicians. Trade finance and its rules should be better explained, especially since the biggest part of trade finance is done without letters of credit, i.e. factoring, forfaiting and open accounts.
  • With respect to the current market situation, the concerns regarding European banks’ deleveraging are still high, though perhaps lessening slightly. This continuing European deleveraging created a lot of space taken up by some US and regional banks. However the experts wondered if these banks are really able to fill the gap after EU banks’ deleveraging. In the second half of 2011 trade finance was definitely slowing and prices went up, today things are more stable and even prices for trade finance products are coming down. Demand is now more an issue than supply. Experts believe that there is an ever increasing need of trade financing.
  • With Basel III, banks need twice or three times more capital. As a consequence, prices will increase. Trade finance is treated like a risky product category, yet it should be a separate risk category, since it is not comparable to other products. The waiver of the one year maturity floor is certainly a first step in the right direction, even though it has already been waived in most countries. The leverage ratio remains one of the experts’ main concerns (CCF of 100%). When it comes to the implementation of Basel III, they fear an uneven implementation of Basel III which could create an uneven playing field for the banks. Regulators should focus that the new rules will be applied equally in the various regions, instead of individual jurisdictions to apply their own changes (i.e. CRD4 in the EU). The experts think that we will see many smaller financial players leaving the market due to the increasing cost of doing business related to the new rules. The consequence will be that the availability of trade finance will go down. The banking experts recommended that regulation of trade finance be based on facts and an objective assessment of trade finance’s low risk. The ICC’s Trade Register is therefore a crucial tool for both policy makers and senior executives in financial institutions around the world to analyse trade finance risks and to provide much needed empirical evidence to support the view that trade finance is a low risk asset class.
  • Experts noted that US Dollar liquidity is missing and stated that the dependency on the Dollar will become an ever increasing challenge. They noted that the Chinese government is keen to promote the RMB as a fully convertible trade currency. Experts are convinced that the RMB internationalization will start through trade finance, which will bring new business opportunities.
  • Experts agreed that trade sanctions is a topic which should be addressed more precisely and be engaged with regulators (i.e. how to deal with differing sanctions).

Media coverage

Following the consultation, a press conference was held, which was attended by 20 journalists from different media outlets, including: Bloomberg, Al Jazzera, QF Radio, Gulf Times, The Peninsula, Al Watan, Al Sharq, Qatar News Agency, Qatar TV and Al Raya.

Selected quotes

“It is crucial that, during this economic crisis, trade finance be freed up to promote economic growth, especially in the developing world. This would stimulate a well-functioning and effective private sector, thereby improving the conditions for investment and trade.”

Sheikh Khalifa Al Thani, Chairman of ICC Qatar
and the Qatar Chamber of Commerce and Industry

“SMEs could be the engine of economic growth if given better access to investment through new regulatory frameworks for trade finance.”

Kah Chye Tan, ICC Banking Commission Chair

“The consultations we’ve held in Europe, North America, Asia and here in the Middle East ensure that businesses large and small have an opportunity to contribute their views and help shape ICC’s policy recommendations for input into the G20 process.”

Jean-Guy Carrier, ICC Secretary General

“Classifying trade finance as a high-risk financial instrument, subject to higher capital adequacy requirements, could have a severe and adverse impact on the pricing and supply of trade finance. Such a development would negate the positive impacts of our trade-supportive policy efforts, with knock on impacts in terms of lost jobs and higher costs for all parts of the global supply chain.”

Jean-Guy Carrier, ICC Secretary General

“By working directly with the global business community, governments could find effective solutions to help tackle the economic crisis. Removing barriers to trade and investment would not only provide a necessary stimulus to the global economy, but would also give business the clear sign that governments will not resort to protectionism.”

Jean-Guy Carrier, ICC Secretary General

Press release

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