ICC BANKING COMMISSION MIAMI MEETING 2018: Day 2 @ 11:15 - ICC Trade Register 2017

ICC BANKING COMMISSION MIAMI MEETING 2018: Day 2 @ 11:15 - ICC Trade Register 2017
POLICY AND BUSINESS PRACTICES Banking Commission ICC TRADE REGISTER 2017 Summary of Findings February 2018
1 POLICY AND BUSINESS PRACTICES Acknowledgements Conclusions and Evolution of Trade Register Export Finance Findings Trade Finance Findings Introduction to 2017 Trade Register AGENDA
2 POLICY AND BUSINESS PRACTICES INTRODUCTION TO THE TRADE REGISTER ICC Trade Register aims to provide an objective, transparent and robust view of the risk profile and characteristics of Trade and Export Finance with the intention of contributing to informed policy and regulatory decisions. The Trade Register also aims to deliver a common understanding of the international regulations affecting bank capital requirements for Trade and Export Finance as part of the ICC’s commitment to effective and collaborative advocacy. ICC Trade Register analysis focused on credit-related risk across the following products: • Trade Finance: Import LCs, Export LCs, Loans for Import / Export, Performance Guarantees • Export Finance: Export Loans backed by Export Credit Agencies (ECAs) based in OECD-member countries for commercial and / or political risk The Trade Register database is continually growing, with the total exposures exceeding USD 11 trillion this year, across over 20 million transactions • Combination of Import L/Cs, Export L/Cs, and Performance Guarantees equals approximately 40% of global traditional Trade Finance Flows We continue our strategic partnership with The Boston Consulting Group (BCG) and Global Credit Data (GCD) in the 2017 Trade Register report Source: ICC Global Annual Survey, bank interviews
4 POLICY AND BUSINESS PRACTICES 0.10% 0.02% 0.27% 0.02% 0.02% OVERVIEW OF OBLIGOR-WEIGHTED FINDINGS IN 2017 REPORT TRADE FINANCE REMAINS A LOW RISK PRODUCT 1. Accounts for 7.6% observed 'Claim Rate', using alternative methodology to 2015 report Note: Figures based on defaults by obligor. LGD is exposure-weighted and applies 9% discount rate. Source: ICC Trade Register 2017 0.47% 0.47% 0.05% 0.38% 0.80% 100 100 100 100 7.6 Exposure-weighted default rate Exposure at default Loss given default Expected loss Import LC Export LC Loans for import/export Performance Guarantees (applying CCF to EAD) Performance Guarantees (applying CCF to LGD) 5%1 34% 60% 36% 26%
5 POLICY AND BUSINESS PRACTICES 0.02% 0.01% 0.07% 0.01% 0.01% EXPOSURE-WEIGHTED EXPECTED LOSS REMAINS LOW DUE TO LOW DEFAULT RATES 1. Accounts for 7.6% observed 'Claim Rate', using alternative methodology to 2015 report Note: Figures based on defaults by exposure. LGD applies 9% discount rate. Source: ICC Trade Register 2017 0.24% 0.24% 0.03% 0.07% 0.22% 100 100 100 100 7.6 Exposure-weighted default rate Exposure at default Loss given default Expected loss Import LC Export LC Loans for import/export Performance Guarantees (applying CCF to EAD) Performance Guarantees (applying CCF to LGD) 5%1 34% 60% 36% 26%
6 POLICY AND BUSINESS PRACTICES TRADE FINANCE DEFAULT RATES COMPARE FAVOURABLY TO SIMILAR ASSET CATEGORIES Exposure Weighted, 2008-2016 Default rate LGD Expected Loss Time to recovery Note: Based on 2008-2016 data for Trade Finance, and 2000-2015 data for other products. Default rate is exposure weighted for Trade Finance products and obligor-weighted for other products. LGD is exposure weighted. 1. Accounts for 7.6% observed 'Claim Rate' (i.e. applying CCF to LGD) Source: ICC Trade Register 2017 0.07% 0.24% 0.22% 0.20% 0.20% 0.03% 0.50% 0.10% Trade Finance Other Products 36% 33% 28% 25% 5%1 28% 34% 26% 3 bps 6 bps 14 bps 5 bps 7 bps 1 bps 2 bps 1 bps 184 days 123 days 61 days 444 days 111 days 436 days 457 days 411 days Product/Asset Category Import L/Cs Export L/Cs Loans for Import/Export Performance Guarantees Small / Medium Enterprise Large Corporate Banks & FIs Commodities Finance
7 POLICY AND BUSINESS PRACTICES OBLIGOR-WEIGHTED DEFAULT RATES DECLINING ACROSS ALL PRODUCTS IN 2016 Source: ICC Trade Register 2017 Import L/Cs Export L/Cs Loans for Import/Export Obligor-weighted Exposure-weighted Transaction-weighted Performance Guarantees 0.45% 0.61%0.61% 0.42% 0.0 0.4 0.8 1.2 2015 20162013 2014 0.88%0.93% 1.10% 0.61% 0.0 0.4 0.8 1.2 0.06%0.08%0.03%0.06% 0.0 0.4 0.8 1.2 0.48%0.50%0.43% 0.28% 0.0 0.4 0.8 1.2 0.55% 0.38% 0.13%0.20% 0.0 0.4 0.8 1.2 2015 201620142013 0.29%0.32%0.23%0.17% 0.0 0.4 0.8 1.2 0.01%0.11%0.01%0.01% 0.0 0.4 0.8 1.2 0.03%0.11%0.13% 0.04% 0.0 0.4 0.8 1.2 0.12% 0.24%0.23%0.23% 0.0 0.4 0.8 1.2 20152014 20162013 0.28%0.24% 0.36% 0.22% 0.0 0.4 0.8 1.2 0.01%0.03%0.01%0.01% 0.0 0.4 0.8 1.2 0.22%0.14%0.10%0.09% 0.0 0.4 0.8 1.2
8 POLICY AND BUSINESS PRACTICES IMPORT L/Cs | DEFAULT RATES WEIGHTED BY REGION SLIGHT DECLINE IN OBLIGOR DEFAULTS MOSTLY DRIVEN BY EUROPE 0.6 0.4 0.0 0.2 2013 20152014 (%) 2016 0.2 0.4 0.0 0.6 (%) 2016201520142013 0.4 0.0 0.2 0.6 (%) 201620142013 2015 Note: Regions and Countries reflect those of Obligor Source: ICC Trade Register 2017 APACAfrica Middle East OtherNorth AmericaEuropeCentral & South America Default rate weighted by obligor Default rate weighted by exposure Default rate weighted by transaction
9 POLICY AND BUSINESS PRACTICES EXPORT L/Cs | DEFAULT RATE WEIGHTED BY REGION OBLIGOR-WEIGHTED DEFAULTS DECLINE IN ALL REGIONS EXCEPT AFRICA 0.00 0.08 0.04 0.12 (%) 2015 20162013 2014 0.08 0.04 0.12 0.00 20142013 (%) 2015 2016 0.12 0.00 0.08 0.04 (%) 2014 20152013 2016 Note: Regions and Countries reflect those of Obligor Source: ICC Trade Register 2017 Africa North AmericaAPAC Middle EastEuropeCentral & South America Other Default rate weighted by obligor Default rate weighted by exposure Default rate weighted by transaction
10 POLICY AND BUSINESS PRACTICES LOANS FOR IMPORT/EXPORT | DEFAULT RATE WEIGHTED BY REGION DECLINE IN OBLIGOR DEFAULTS DRIVEN BY APAC, THE AMERICAS 0.0 0.4 0.8 1.2 20142013 20162015 (%) 1.2 0.8 0.0 0.4 (%) 20152013 2014 2016 0.4 0.0 0.8 1.2 (%) 2015 201620142013 Note: Regions and Countries reflect those of Obligor Source: ICC Trade Register 2017 Middle East OtherAPAC Central & South America Europe North AmericaAfrica Default rate weighted by obligor Default rate weighted by exposure Default rate weighted by transaction
11 POLICY AND BUSINESS PRACTICES PERF. GUARANTEES | DEFAULT RATE WEIGHTED BY REGION DECLINE IN OBLIGOR DEFAULTS SPREAD ACROSS APAC, EUROPE, AND THE AMERICAS 0.00 0.50 0.25 0.75 (%) 2016201520142013 0.00 0.50 0.25 0.75 (%) 2016201520142013 0.25 0.50 0.75 0.00 (%) 2016201520142013 OtherMiddle East North AmericaEuropeCentral & South AmericaAPACAfrica Default rate weighted by obligor Default rate weighted by exposure Default rate weighted by transaction Note: Regions and Countries reflect those of Obligor Source: ICC Trade Register 2017
12 POLICY AND BUSINESS PRACTICES 9% 9% 9% 9% 9% DEEP DIVE: FACTORS DRIVING LOSS GIVEN DEFAULT 1. Accounts for 7.6% observed 'Claim Rate', using alternative methodology to 2015 report Source: ICC Trade Register 2017 42.3% 67.4% 42.3% 70.5% 79.0% 200 bps 200 bps 200 bps 200 bps 200 bps 26.3% 36.3% 33.5% 60.3% 4.6%1 Exposure-weighted recovery rate Cost of recovery Average time to recovery Discount rate LGD 0.50 years 0.30 years 0.34 years 2008-2016 Import L/Cs Export L/Cs Loans for Import/Export 0.17 years Performance Guarantees (applying CCF to EAD) Performance Guarantees (applying CCF to LGD) 0.17 years x 7.6% claim rate
14 POLICY AND BUSINESS PRACTICES EXPORT FINANCE DEFAULT RATES REMAIN LOW, SLIGHT GROWTH MOSTLY DRIVEN BY SOVEREIGN DEFAULTS Default rate by Exposure Default rate by Obligors Default rate by Transactions 1.0 1.5 0.5 0.0 0.07 FI 1.17 0.14 0.44 0.50 Specialised 0.430.42 Sovereign 1.24 0.45 Corporate 0.55 Default rate (%) Total 2007-20162007-2015 0.0 0.5 1.5 1.0 Total 0.95 0.90 0.96 1.03 1.37 0.26 FICorporate 1.41 0.43 0.60 Specialised 0.56 Sovereign Default rate (%) 1.0 0.0 1.5 0.5 Total 0.82 Specialised 1.43 Corporate 0.14 0.76 0.67 0.30 FI 0.55 Sovereign 1.36 Default rate (%) 0.79 0.84 Total '16 357m 50m 119m 150m 675m Defaults '16 2.0m 0.6m 0.2m 0.6m 3.4m 8,727 3,658 2,104 3,189 17,678 90 50 9 19 168 18,301 7,583 6,078 8,478 40,440 153 103 18 57 331 Source: ICC Trade Register 2017
15 POLICY AND BUSINESS PRACTICES THE AMERICAS AND AFRICA HAVE SEEN LARGEST INCREASES IN DEFAULT RATES, SLIGHT GROWTH IN APAC Note: Regions and Countries reflect those of Obligor. Ex-CIS countries: Russia , Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Republic Of, Russian Federation, Turkmenistan, Ukraine, Uzbekistan Source: ICC Trade Register 2017 Default rate by Exposure Default rate by Obligors Default rate by Transactions 1.5 3.0 2.0 2.5 0.0 0.5 1.0 Default rate (%) 0.44 0.11 0.50 North America Total 0.55 1.10 1.01 0.37 0.27 ex-CISEurope (ex-CIS) 0.34 0.37 1.08 0.34 Central/ S. Amer. 0.99 0.17 Africa 0.41 0.04 Middle East APAC 2007-20162007-2015 2.5 1.0 0.0 1.5 2.0 0.5 3.0 0.95 Default rate (%) Africa 0.57 North America 0.55 2.64 ex-CIS TotalAPAC 0.90 1.28 Europe (ex-CIS) Middle East 0.47 2.44 1.00 0.07 1.23 0.60 0.53 Central/ S. Amer. 0.90 0.67 0.85 2.0 1.5 1.0 2.5 0.5 0.0 3.0 Default rate (%) 0.76 Europe (ex-CIS) North America Total 0.56 1.30 0.82 0.07 2.29 ex-CIS 0.550.58 Central/ S. Amer. 0.62 Middle East 1.23 0.34 Africa 0.56 0.49 APAC 0.39 0.76 2.16 Total '16 74m 156m 97m 138m 73m 66m 70m 675m Defaults '16 0.3m 0.6m 0.5m 0.5m 0.7m 0.7m 0.1m 3.4m 1.8k 3.2k 2.1k 3.5k 4.3k 1.4k 1.5k 17.7k 16 19 21 19 53 33 7 168 4.7k 9.2k 5.1k 7.4k 7.0k 3.8k 3.2k 40.4k 36 36 32 41 86 82 18 331
16 POLICY AND BUSINESS PRACTICES SPIKE IN BRAZIL IS DRIVING GROWTH IN 2016, RECENT DEFAULTS IN SINGAPORE AND SPAIN HAVE SUBSIDED Backup Note: Regions and Countries reflect those of Obligor Source: ICC Trade Register 2017 0.0% 1.0% 0.5% 1.5% Av. 2007-2016: 0.48% 0.97% 1.06% 2011 0.15% 0.47% 2016201320102008 20152012 201420092007 0.69% 0.52% 0.28% 0.32%0.34% 0.01% SpainBrazil Iran OtherRussiaSingaporeCanada Defaults by Exposure (Weighted by Country)
17 POLICY AND BUSINESS PRACTICES EXPORT FINANCE CONTINUES TO HAVE LOW EXPECTED LOSS RATES AS ECA BACKING REMAINS HIGH ECA Recoveries Customer Recoveries Total Recoveries Loss Rate Discount Costs ECA completed/ accelerated and partial completed cases 96.2% 0.8% 96.9% 3.1% 1.3% 1% ECA completed and customer completed cases 97.7% 1.7% 99.4% 0.6% 2.2% 1% Default Rate by Exp. (PD) Exposure at Default (EAD) Loss Given Default (LGD) Expected Loss (EL) 0.50% 100% 5.31% 0.026% 0.50% 100% 3.75% 0.019% Source: ICC Trade Register 2017
18 POLICY AND BUSINESS PRACTICES BACKUP: AVERAGE ECA INSURANCE COVERAGE RATE BY ASSET CATEGORY AND REGION 93% 95% 96% 94% 5% 6% 0 20 40 60 80 100 4%7% SOVEREIGNFI SPECIALIZEDCORPORATE % insurance coverage rate CoveredUncovered 94% 94% 94% 93% 93% 94% 95% 6% 7% 7% 6% 5% Africa 6% North Americaex-CIS Middle EastAPAC Central & South America 6% Europe 94% Av. 2007 - 2016 RegionAsset Category Note: Regions and Countries reflect those of Obligor Source: ICC Trade Register 2017
20 POLICY AND BUSINESS PRACTICES CONCLUSIONS AND KEY TAKEAWAYS Trade Finance plays an essential role in enabling and supporting global trade flows, by providing both financing and risk mitigation for importers and exporters often transacting with unknown and distant counterparties. The ICC Trade Register plays and important role in providing up-to-date, accurate, and detailed information on the products' risk profiles and industry trends. These finding are essential for informing policy and regulatory decisions, and broadening the awareness and understanding of the risk and regulation associated with Trade and Export finance The 2017 ICC Trade Register supports findings from previous years – Trade and Export Finance present banks with short average maturities and low credit risk, with low default rates, LGD and EL. Nevertheless, it was noted that: • For Trade Finance, obligor-weighted default rates declined across all products, and as a result Trade Finance maintained its low Expected Loss rates • Export Finance saw growth in default rates primarily due to a Sovereign default in Africa and an isolated incident in Brazil, however a slight reduction in Loss Given Default resulted in broadly similar Expected Loss rates to last year The ICC will continue to leverage these findings to encourage appropriate treatment of Trade and Export Finance by regulators; an important role given the evolution of the regulatory environment through measures such as IFRS 9 and Basel III Finalisation Looking forward, the ICC plans to continue improving the Trade Register across several dimensions, including: • Expanding scope to include Supply Chain Finance in the 2018 report, and continuing to discuss the inclusion of non-OECD ECAs and transactions covered by certain multi-laterals • New data gathering infrastructure to be rolled out with the support of GCD to enhance the quality of the data set and improve our return to members Source: ICC Global Annual Survey, bank interviews
22 POLICY AND BUSINESS PRACTICES ACKNOWLEDGEMENTS Trade Register Member Banks • AKA Bank • ANZ • Bank of America Merrill Lynch • Bank of China • Barclays • BMO Financial Group • BNP Paribas • Credit AricoIe CIB • Deutsche Bank • HSBC • ING • J.P. Morgan Chase Trade Register Project Team Chair ICC Trade Register Project • Krishnan Ramadurai, Chair of ICC Trade Register Project, Global Head of Capital Management for Trade & Receivable Finance HSBC Bank plc Technical Advisors, ICC Trade Register Project • Alexander Malaket, Deputy Head of the Executive Committee, ICC Banking Commission, President, OPUS Advisory Services International Inc. • Henri d'Ambrières, Senior Technical Advisor, Export Finance, HDA Conseil • Hugo Verschoren, Senior Technical Advisor, Trade Finance, ING Project Management, ICC Banking Commission • David Bischof, Senior Policy Manager, ICC Banking Commission Boston Consulting Group • Sukand Ramachandran, Partner and Managing Director • Jarryd Porter, Project Leader • Ravi Hanspal, Consultant • Campbell Leckie, Consultant Global Credit Data • Philip Winckle, Executive Director • Robert Korako, Methodology and Membership Executive • Michaël Dhaenens, Data Operations Executive • KfW IPEX-Bank • Mizuho • Rand Merchant Bank • Santander • Société Generale • Standard Bank • Standard Chartered Bank • Sumitomo Mitsui Banking Corp. • UniCredit • Wells Fargo
POLICY AND BUSINESS PRACTICES Banking Commission THANK YOU

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ICC BANKING COMMISSION MIAMI MEETING 2018: Day 2 @ 11:15 - ICC Trade Register 2017