In October 2024, ICC printed its 2024 Trade Register Report and released access to it electronically thereafter.
The ICC Trade Register covers credit risk and default rates for import letters of credit, export LCs, performance guarantees (including standby LCs), and supply chain finance exposures. It analyzes 2023 data provided by 22 trade finance and export finance banks, amounting to over 52 million transactions with exposures of more than USD 25.7 trillion and accounting for about 16% of traditional trade finance flows globally.
After articulating its scope and extent, the Report then identified the pronounced trade trends of 2023, including a slight downturn in goods trade overall counterbalanced by an upswing in services trade and shifting trade alliances. In terms of forecasting trade, continued recovery is anticipated into 2025 despite the uncertainty of ongoing geopolitical conflict and a shifting policy environment. Continued gravitation toward supply chain de-risking tactics, a reconfiguring of trade partners, robust growth from the so-called “Global South” (particularly India and the ASEAN countries), and sustained growth for services trade is predicted as well.
In offering explanation of the trends’ impact, the Report finds that the 6.6% drop in nominal trade & supply chain finance (SCF) revenues from 2022 to 2023 was less than the 7.4% decline predicted in last year’s Trade Register. Use of LCs has slowed while forms of commodities and structured trade finance has ticked upward. Open account continues to rise overall; most notably, receivables finance which has benefited at the expense of payables finance. This could be short-lived, however. While implementation of Basel 3.1 reforms is still taking shape and the Report could not could not draw firm conclusions, it contends regulations will likely increase capital requirements for trade finance products like receivables finance. Similarly, revision of Europe’s Late Payment Directive remains unsettled but its proposed shorter payment terms could be a disincentive for banks to offer SCF programs and drive up financing costs for companies.
As regards trade digitalisation, the Report cites growing momentum even as barriers to comprehensive implementation persist, including a tepid policy environment, a growing array of digital trade practices and standards, a lack of capacity, and multiple factors impeding data-sharing. While the UN’s Model Law on Electronic Transferable Records (MLETR) is seen as a highly promising development for advancing digital trade, its benefits are muted until broader adoption is achieved and trade stakeholders embrace interoperability.
In the area of sustainable trade, the Report suggests it needs to be driven by demand-side adoption with banks playing a key role as facilitators. In a telling statistic pointing to the daunting task of evaluating sustainable trade, the Report cites estimates that just 3% of trade can be classified as “clearly sustainable”, some 22% is “clearly unsustainable”, and the bulk (75%) lingers in a grey area of “potentially sustainable” trade.
In summarizing its analysis of trade, supply chain, and export finance, the Report compares 2022 and 2023 data to offer general observations of default rate trends. Each of the products in brief:
Import LCs – While global exposure-weighted default rates decreased, default rates on a transaction-weighted basis rose sharply. The Report suggests this may be attributed to higher medium-size corporate defaults and ties Europe’s increased defaults to the European Banking Authority’s (EBA) Days Past Due (DPD) changes.
Export LCs – Significantly lower than for other trade finance products, rates for both obligor-weighted and transaction-weighted defaults dropped in 2023 to their lowest levels since 2018 and 2012, respectively. Of defaults seen, they were largely experienced in Russia.
Loans for Import/Export – From 2022 to 2023, default rates on an exposure-weighted basis dipped slightly for loans for import/export. Compared to the 2020 peak of the pandemic era, these rates were markedly lower, but rates for transaction-weighted defaults climbed to approach 2020. On an obligor-weighted basis, default rates declined appreciably to their lowest level since 2011. Of those that occurred, they were disproportionately seen in Africa and the Middle East.
Performance Guarantees/Standbys – Default rates decreased on both exposure- and obligor-weighted bases, while there was a small increase on a transaction-weighted basis from 2022 to 2023. The Report cited a major uptick in default rates in Russia “likely due to the longer-term nature of performance guarantees, which introduces a lag between the implementation of sanctions and the realisation of unresolved defaults.”
In the area of supply chain finance, ICC analysis zeroed in on payables finance with data demonstrating it remains among the lowest-risk trade finance products on an exposure-weighted basis. This is partially explained by the nature of payables finance which is typically associated with well-established businesses with a large volume of repeat customers.
As for export finance, it continues to be a low risk area for banks. Although 2023 witnessed a slight increase in default rates, rates largely reflect long-term averages.
The summary Report concluded by emphasizing the merits of its comprehensive dataset. It also expressed its desire to boost participation. The 2024 Trade Register Report involved 22 member banks, the same number as for the 2019 Trade Register.
The 52-page 2024 Trade Register Report summary may be freely downloaded by interested parties and the full package of product-by-product data can be purchased by contacting ICC.
