World Chambers Congress - Istanbul 2007

Wide variations of trade finance risk in Asia

Paris, 16 October1997- The current issue of the ICC newsletter Documentary Credits Insight highlights trade finance in Asia against the background of recent currency and stock market turmoil in its southeast region. An assessment by financial writer Kevin Godier says that trade finance practitioners will carefully assess the difficulties in individual countries and notes that they pre-dated the regional upheaval and are likely to linger on in individual markets.

The article says problems in securing payment under letters of credit in Vietnam are a telling illustration of how the business boom in Asia "sometimes led banks to extend unwarranted levels of access to trade finance to countries in the region where the struggle to develop a market economy can trigger significant liquidity risks."

Godier goes on to say that Asia's business pull remains as strong as ever, but prudence remains necessary in a continent ranging from technologically advanced capitalist economies to the ranks of the recently communist.

On Chinese risk, the article says that although China is by far the region's most active trade finance ma rket, western lenders stress that until private enterprises establish longer track records and state banks reduce lending to debt-ridden domestic enterprises, letter of credit security from China's leading banks will continue as a requirement to support most transactions.

However, according to Godier, the level of disputes is on the wane and Chinese banks have become more familiar with the standards of the ICC's Uniform Customs and Practice for Documentary Credits (UCP 500). Western lenders are concentrating business on banks in coastal mainland centres where trade is well developed.

The article concludes that, given the wide variance in the categories of Asian risk, a mandatory requirement for overseas financiers and exporters is the selection of appropriate levels of financial support and guarantees for each transaction.

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Wide variations of trade finance risk in AsiaWide variations of trade finance risk in Asia