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The 2024 ICC Trade Register Report provides an in-depth analysis of global trade and trade finance dynamics, with a focus on risk assessment, emerging trends, and the evolving regulatory landscape. It highlights key economic and geopolitical challenges, shifts in trade flows, and the continued resilience of trade finance as a low-risk asset class. 

https://iccwbo.org/news-publications/policies-reports/icc-trade-register-report/?utm_source=chatgpt.com

Overview 

The ICC Trade Register is an industry-wide initiative that provides detailed insights into the credit risk characteristics of trade finance products. It is a key reference for financial institutions, regulators, and policymakers. Established following the 2007-2009 financial crisis, the Trade Register has evolved into a vital source of data for assessing trade finance risks, helping to shape regulatory policies and banking strategies.

Trade in 2023

The report notes that 2023 was a challenging year for global trade, with ongoing geopolitical tensions, a slowdown in demand across key markets, and structural changes in trade flows. Global goods trade contracted by 4.8% in nominal terms and 0.7% in real terms, primarily due to declining commodity prices and reduced economic activity in major economies. However, services trade grew by 8%, driven by the recovery in international travel and a continued shift towards digitally delivered services.

Key trends included:

• A decline in global trade volumes, particularly in goods, with inflation and higher interest rates limiting demand.
• Significant sectoral variations, with energy, metals, and chemicals seeing reduced trade, while automotive and aerospace industries experienced growth.
• A shift in global trade corridors, with China increasing its trade with BRICS nations (notably Russia, Brazil, and India), while US-Mexico-Canada trade strengthened due to protectionist policies and industrial incentives.

Forecast for 2024 and Beyond

Despite the economic headwinds in 2023, early indicators suggest that 2024 will see a recovery in global trade. The report forecasts:

• A 4.8% compound annual growth rate (CAGR) in nominal terms for global goods trade over the next decade.
• A 6.2% CAGR for services trade, with a particular focus on digital services and business solutions.
• A continued shift towards regionalisation and supply chain resilience, with companies and governments prioritising trade within politically aligned blocs.
• Increased use of non-dollar currencies in international trade, particularly the Chinese yuan in transactions involving China, Russia, and parts of Asia.

Performance and Risks

Despite macroeconomic volatility, trade finance remains a low-risk asset class, with default rates consistent with historical trends. The ICC Trade Register continues to demonstrate that trade finance instruments exhibit low probabilities of default, reinforcing their attractiveness to banks and investors.

Key insights include:

• A contraction in trade finance revenues by 6.6% in 2023, due to tighter margins and reduced trade flows.
• Receivables finance emerged as the fastest-growing trade finance product, driven by demand for working capital solutions.
• Documentary trade, particularly letters of credit, experienced lower growth, reflecting the broader shift towards open account trade.

Regulatory Developments 

The report discusses the evolving regulatory landscape, particularly in relation to Basel III reforms, which introduce stricter capital requirements for trade finance. Key regulatory updates include:

• The Prudential Regulation Authority (PRA) in the UK reducing the credit conversion factor (CCF) for trade finance products from 50% to 20%, a move influenced by ICC's data-driven advocacy.
• The proposed revision of the EU's Late Payment Directive, which aims to shorten payment terms to 30 days, potentially impacting supply chain finance profitability.
• Ongoing regulatory consultations in the EU, UK, and US on trade finance risk weighting, which will influence the cost and availability of trade finance products.

Digitisation 

The report highlights the increasing role of digital transformation in trade finance, with a focus on the adoption of electronic trade documents, AI, and blockchain. Key developments include:

• The Model Law on Electronic Transferable Records (MLETR), which aims to standardise the legal recognition of digital trade documents, though adoption remains fragmented.
• E-invoicing regulations in the EU, which will drive efficiency in trade finance by automating invoicing and compliance.
• The rise of Artificial Intelligence (AI) and Generative AI (GenAI) in trade finance, with potential applications in document processing, fraud detection, and risk assessment.

Conclusion

The 2024 ICC Trade Register Report underscores the resilience of trade finance amid economic uncertainties, reinforcing its low-risk nature and critical role in supporting global trade. While 2023 posed significant challenges, early indicators suggest a gradual recovery in 2024, supported by easing inflation, stabilising interest rates, and technological advancements. However, regulatory shifts and geopolitical realignments will continue to shape the industry, requiring banks and policymakers to remain agile and data-driven in their approach.

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