Credit risk in trade, supply chain and export finance returns to pre-pandemic levels, confirms ICC – ICC
The International Chamber of Commerce (ICC), together with its partners Global Credit Data (GCD) and Boston Consulting Group (BCG), has released its 2022 Commerce Registry Report, confirming that credit risk in commerce, the supply chain sourcing and export financing has retreated to pre-pandemic levels.
Following the impact of the COVID-19 pandemic in 2020 on trade volumes, 2021 reaffirmed the resilience of global trade with a strong and better-than-expected return to growth, with total trade flows exceeding nearly 20 % pre-pandemic levels. This recovery in global trade, as well as its steady growth over the past three decades, has been clearly supported by trade finance products that provide liquidity and risk mitigation solutions for importers and exporters, allowing them to conduct cross-border transactions with confidence. Despite the current macroeconomic uncertainty, BCG expects global trade in goods to continue to grow at an additional compound annual growth rate (CAGR) of 5.6% over the next 10 years on a nominal basis and 2.3% in real terms.
The ICC Trade Register continues to be the authoritative global source for default rates in trade, supply chain and export finance using its dataset which represents almost a quarter of all global trade finance transactions. For 2021, the report confirms lower default rates across all asset classes compared to the prior year:
- Import letters of credit: the debtor-weighted default rate fell from 0.64% in 2020 to 0.29% in 2021 (-0.35 ppt.)
- Export letters of credit: debtor-weighted default rate fell from 0.06% in 2020 to 0.05% in 2021 (-0.01 ppt.)
- Import/export loans: the debtor-weighted default rate fell from 0.92% in 2020 to 0.36% in 2021 (-0.56 ppt.)
- Performance guarantees: the debtor-weighted default rate fell from 0.49% in 2020 to 0.26% in 2021 (-0.23 ppt.)
- Supply Chain Finance: Obligor-weighted default rate fell from 0.93% in 2020 to 0.06% in 2021 (-0.87 ppt.)
- Export financing: debtor-weighted default rate fell from 1.01% for 2007-20 to 0.97% for 2007-21 (-0.04 ppt.)
While a decline in default rates relative to 2020 would be expected, it is even more reassuring that in many cases 2021 default rates are below pre-pandemic averages; this is likely due to a rapid economic recovery following the deployment of effective COVID-19 vaccines combined with continued government stimuli in many markets.
ICC Secretary General John WH Denton AO said: “These findings reinforce findings from previous iterations of the Trade Register: Trade finance products continue to be resilient and represent banks with low levels of credit risk, even in times of macroeconomic uncertainty. It is important that banks, investors and regulators recognize this and continue to support this valuable asset class.“.
As part of ICC’s continued ambition to enhance the value that the Commerce Registry brings to its member banks and the trade finance community, in this year’s iteration, the Commerce Registry is introducing a set improved data base for the calculation of loss given default (LGD), enabling better estimates of these values and, for the first time, LGD and expected loss estimates for supply chain finance.
Additionally, ICC continues to operate its revised business model introduced last year. This aims to improve the value proposition for member banks and, over time, expand the data set to maximize the role of the commercial register in validating the risk characteristics of global trade.