Asian companies denied $425 million in trade finance in 2011 — ADB report

Banks rejected $425 million in trade finance requests from companies in developing Asian nations in 2011, a recent Asian Development Bank survey revealed. In a statement posted on its website, the multilateral lending agency noted: “According to the 106 banks surveyed, almost $2.1 trillion worth of trade finance proposals were received in Asia, but $425 billion in trade finance requests were not approved.” Trade finance is defined as lending and guaranteeing to support import and export transactions. Globally, trade finance requests received in 2011 by surveyed banks amounted to about $4.6 trillion, but about $1.6 trillion of it was rejected. Reasons cited by the surveyed banks for rejecting the requests include “poor payment records of their correspondent banks, low country ratings in developing countries, and weak banking systems,” ADB said. “For international banks, the main factor that was perceived to aggravate the trade finance gap is previous dispute or unsatisfactory performance of issuing banks (83 percent),” it added. “Dramatic shortfalls in meeting financing needs of importing and exporting companies are exacting a huge toll on job creation and economic growth in the region,” said Steven Beck, head of Trade Finance at ADB. The surveyed companies indicated that a 5-percent increase in trade finance support would mean a 2-percent growth in their business, and a requirement to hire 2 percent more staff. “The same companies said that a 10-percent increase in trade finance support would result in 5 percent more production and 5 percent more jobs,” the multilateral lending agency noted citing the “strong links” between trade finance, economic growth, and job creation. “These trade finance gaps need to be addressed to give developing Asia a boost to create jobs and alleviate poverty,” Beck said. This is the first ADB survey quantifying gaps in trade finance and its link to economic growth and job creation. In 2012, ADB’s Trade Finance Program supported $4 billion in trade through 2,032 transactions involving 1,577 small and medium-sized enterprises. According to the survey, international banks would decrease their trade finance support in “concerned” countries by as much as 13 percent if the ADB TFP no longer existed. — Rouchelle R. Dinglasan/BM, GMA News