17 June 2021
ICC – along with partners Boston Consulting Group and Global Credit Data – has published interim findings from its Trade Register on the performance of short-term trade and supply chain finance assets from 2019 and 2020.
Preliminary analysis of the data for these assets has identified an increase in defaults across most trade finance products in 2020, which is likely at least in part attributable to the effects of the COVID-19 pandemic on economic activity – and related shifts in demand and supply.
However, whilst 2020 default rates are higher than recent years, they are not significantly out of line with the average default rates reported by the Trade Register over the 14-year period for which data has been collected.
The factors behind the performance of trade assets in 2020 will be explored in detail by this year’s ICC Trade Register report, including an analysis of the likely “cushioning” impact of government economic support – such as, emergency state-backed lending.
At product level, a number of initial trends have been identified:
- Import L/Cs: an observed increase in 2020 default rates appears skewed towards small and medium enterprises (“SMEs”). Obligor-weighted default rates overall rose by 40-50% versus the prior year – compared to more modest rises for transaction- and exposure-weighted default rates.
- Export L/Cs: an increase in default rates is observed against prior years across all methodologies, likely influenced by one-off idiosyncratic defaults. Nevertheless, overall default rates for Export L/Cs continue to remain very low relative to other trade finance products.
- Loans for Import / Export: it appears that increases in default rates were driven primarily by two or three large corporate exposures with a number of transactions across a cross-section of banks reporting data to the ICC Trade Register.
- Performance Guarantees: default rates appear relatively flat, potentially influenced in part by contracting parties extending tenors due to the unprecedented nature of the crisis.
- Supply Chain Finance: it appears that default rates have risen, driven primarily by an increase in smaller entity defaults across several regions, and potentially also the result of improved data coverage of Supply Chain Finance (SCF) exposures in the ICC Trade Register over time
Meanwhile, 2019 presented a more mixed picture, with the moderate increases across the portfolio vs. prior years likely driven by SME defaults – potentially indicating an emerging downturn in the economic cycle prior to the pandemic.
ICC has noted that these headline findings are based on an initial analysis of a partial data set – and, as such, should be treated with a degree of caution. ICC, BCG, and GCD teams are in the process of finalising and validating data submissions from member banks, with a view to publishing the final ICC Trade Register report in early September 2021.