Trade products’ capital weighting hit by Basel III regulations

Some guidelines now apply a 100% weighting of trade products which previously had only a 20% weighting.

ABF: What are the profound implications of regulations like the Basel III for trade finance in Asia? How does it change the landscape?

DBS: Ken Stratton, Global Head of Sales, Global Transaction Services
One of the biggest impact of Basel III is the amendment to capital weighting for trade products. At this stage there are guidelines in place that apply a 100% weighting of trade products which had previously incurred a 20% or 50% weighting, based on historical loss norms for these products. Under Basel III all trade products will be 100% weighted. The International Chamber of Commerce (ICC) is pushing to change the Basel Committee’s position on this approach.

Oliver Wymann: Jason Ekberg, Consultant
Cost of funding could balloon 30-40% driving down ROEs; ability to distribute could grow to manage liquidity, e.g., JPM’s recent structured credit offering with trade finance underlyings. Some potential for growth of specialized funds, e.g., recent ADM fund focused on Asia SME as example. I would note the jury is still out – the industry is actively engaging regulators on this topic.