And pricing increase will likely be passed to the corporates.
ABF: What is the impact of Basel III on trade finance pricing?
OCBC: Clara Hang, Head, Global Trade Finance, Global Transaction Banking
The emerging markets dependency on trade is significant and Basel III is likely to result in an increase in trade finance pricing and consequently a reduction in the volume of trade finance, due to the new capital and liquidity ratio requirements. It will become more difficult for SMEs to gain access to trade finance and the increase in pricing will likely be passed to the corporates.
Techcombank: Dang Tuyet Dung, Head of Wholesale Banking Division
While Trade Finance is a strong global trend, and Asia market is also moving towards more innovation and initiatives of Trade financing, the challenges for Trade Finance remain regulatory framework, compliance and capital requirements.
Under Basel III, banks will be required to hold the leverage ratio of Tier 1 capital over total assets and off-balance sheet exposures equal to 3%. It means that off-balance-sheet trade finance (i.e. letters of credits, standby letters of credits and letters of indemnity), along with other off-balance-sheet items, will have to be incorporated into the calculations of the leverage ratio, and thus are assigned a 100% credit conversion factor.
As a result, capital costs for banks in trade finance are expected to increase, resulting in a rise in prices of trade finance to remain the sector’s profitability. Basel III, thus will make trade finance transactions less attractive from capital point of view. Trade finance losses have been proved very low and regulators should see how to support the world trade generally.
Bank of the Philippine Islands: Christine Grace Bandol, Vice President, Trade Finance Department
Basel III requires banks to allocate capital for trade finance products which may increase cost and current fee structures. However, BPI is committed to remain competitive by continuously implementing transactional cost reduction programs that primarily involve automation of processes.
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