IFC to lend more to Asian banks

International Finance Corporation has US$5 billion to support bank trade financing.

IFC, the private sector financing arm of the World Bank Group, has again increased its funding support to Asian client banks’ trade finance transactions. It has raised the funds for its trade finance programme by US$2 billion to a total of US$5 billion to open new credit lines in critical markets to better support banks’ trade business.

IFC’s trade finance facility is one of its key programmes to support the Asian banking sector. With the implementation of Basel III regulatory standards beginning next year, the new capital requirements that banks need to raise for off-balance sheet contingent liabilities, which include trade finance, will pose serious challenges for the financial sector.

IFC believes this is likely to have the unintended consequence of making international banks and credit insurers less willing to support trade finance, just when it’s needed most to spur economic growth. It said the additional capital requirement will have a disproportionate impact on Asian economies, especially for banks that use trade finance instruments.

In recent months, IFC has noted an increasing demand for US dollar-denominated trade finance from its emerging-market client banks, boosting global trade flows. Since 2005, the World Bank unit has allotted almost US$25 billion as guarantees in emerging market trade.