EBRD: a tricky 2012 in trade finance | beyondbrics | News and views ...

After something of a recovery in 2011, European trade is set for a rocky year if trade finance indicators are anything to go by.

The European Bank for Reconstruction and Development has published a report showing that the upturn of 2010 in trade finance continued into early 2011 ? but the gloom is set to return in 2012, ?bringing back the fear that recovery felt in early 2011 might have been short-lived.?

The indicator of bad tidings is Swift, the global payments system ? and specifically the messages explicitly related to trade, ?such as collection and cash letters, documentary credit and guarantees, which account on average for about one per cent of all SWIFT messages? according to the EBRD.

This is the chart that points the way:

From the report:

This indicator dropped sharply in late 2008-early 2009 and rebounded strongly in the first half of 2010 (Figure 3).

Since April 2011 it has then dropped again into negative territory. This parallel would indeed support the gloomier view on trade finance. In contrast, the total number of SWIFT payment messages has been rising fast since early 2010, reflecting perhaps globalisation and technology trends.

The indicator is backed up by the latest ICC-IMF survey of almost 500 financial institutions worldwide, which confirms a bleak picture for trade finance in 2012. There is a clear split in sentiment between Asia and Europe: ?Almost 59 per cent of respondents in Emerging Asia expect trade finance conditions to improve in 2012, while in the eurozone only 16 per cent do, and almost half of respondents there expect things to get worse.?

So Europe down, Asia stays OK? No necessarily. As the EBRD points out, there is a ?bigger problem for global trade than first meets the eye.? According to the ICC-IMF survey, as much as half of trade finance products offered by banks worldwide come from eurozone banks. Hence any lending constraints will have a negative impact globally on trade finance.

Bumpy road ahead.

Related reading:
What next for European banks in Asia? beyondbrics
UBS: European bank deleveraging isn?t as bad as you think, beyondbrics
Special Reports: Transaction Services 2011
Eurozone lenders cling tightly to ECB life raft, FT

Source: http://blogs.ft.com/beyond-brics/2012/02/23/ebrd-a-tricky-2012-in-trade-finance/

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