Trade finance gap narrows to US$1.5trn, ADB estimates

News | 5 September 2017

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The estimated gap between trade that needs to be financed and trade that is financed narrowed to US$1.5trn in 2016, from US$1.6trn the year earlier, a survey conducted by the ADB says. Some 515 banks and 1,336 companies from more than 100 countries responded to the survey.

Bank-reported rejection rates are highest in Asia and the Pacific (as are proposals for trade transactions), and the region accounted for 40% of the trade finance gap.

Figure 1: Proposed and Rejected Trade Finance Transactions (by region)

Source: Asian Development Bank

“A sizeable trade finance gap is a drag on trade, growth, and job creation,” Steven Beck, head of trade finance at ADB said. “We hope the results of the survey will encourage private and public sectors to ramp up collaborative efforts to improve businesses’ access to trade finance. Our Trade Finance Program (TFP) is here to assist and address these market gaps.”

This year’s ADB Trade Finance Gaps, Growth and Jobs Survey also found that 74% of rejected trade finance transactions came from MSMEs (micro, small and medium-sized enterprises), up from 57% in 2015 (although definitional changes in the category partly explain the steep rise).

Women-owned firms reported higher rejection rates (and are less likely to have access to alternative finance). Interestingly, as much as 36% of rejected trade finance could be fundable by non-bank financial institutions.

The survey also polled on fintech and digitisation and found that 80% of banks report that digitisation will result in lower costs, but there is no evidence yet that those savings will translate into improved capacity to finance trade.

Figure 2: Reasons Banks Reject Trade Finance Applications (% of rejections)

Source: Asian Development Bank

A major reason cited by 29% of bank respondents on why they declined trade finance was failure at the level of know your customer (KYC) concerns. Those rejections could be in large part down to the cost of conducting KYC evaluation on smaller potential clients, the survey conjectured.

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