As evidenced in the 2017 ICC Trade Survey (refer our recent blog), the market has seen a reduction, in percentage terms, in the refusal rate for first presentation of documents under documentary credits. On the contra-side, there has reportedly been an increase in the number of spurious discrepancies raised by issuing banks.
Whilst there is evidence of positivity in the reduced trend towards refusal of documents, this would appear to be somewhat offset by the increase in doubtful discrepancies.
As such, we believe it is worth undertaking a historical analysis in order to determine whether or not practitioners are actually seeing improvements in this area.
Refusal rate for first presentation of documents:
2012 survey: 45% of respondents evidence increase, 55% decrease or no change
2013 survey: 46% of respondents evidence increase, 54% decrease or no change
2014 survey: 34% of respondents evidence increase, 66% decrease or no change
2015 survey: 34% of respondents evidence increase, 66% decrease or no change
2016 survey: 15.8% of respondents evidence increase, 18.7% decrease, 65.6% no change
2017 survey: 12.3% of respondents evidence increase, 26.7% decrease, 58.9% no change
Overall, this would appear to be an encouraging trend in that the percentage of practitioners signalling an increase in the refusal rate is reducing year by year.
However, it should be a matter of concern that the percentage reporting no change still hovers around the 60% level. Considering it is estimated that the global percentage of documents refused on first presentation ranges between 60-75%, this is still far too high. Obviously, this does not necessarily mean that a beneficiary will not receive payment. However, it does mean that, at the very least, there will be a delay in receiving settlement or financing and an increase in bank fees.
Spurious discrepancies:
2010 survey: 44% of respondents evidence increase, 29% decrease
2011 survey: 17% of respondents evidence increase, 15% decrease
2012 survey: 31% of respondents evidence increase, 9% decrease
2013 survey: 31% of respondents evidence increase, 7% decrease
2014 survey: No feedback on increase, 7% of respondents evidence decrease
2015 survey: 18.5% of respondents evidence increase
2016 survey: 18.5% of respondents evidence increase, 20.6% decrease
2017 survey: 21.9% of respondents evidence increase, 21.3% decrease, 52.7% no change
The percentage of respondents reporting an increase has declined from the pre-2014 high levels. However, it is definitely a concern that only 21.3% of those responding in 2017 have seen a decrease in spurious discrepancies.
So, what can be done about this? We will revert to this issue in our next blog.