According to the International Chamber of Commerce (ICC), around $5 trillion of trade credit will be required to facilitate a rapid recovery from the Covid-19 crisis.
Despite welcoming the actions taken during the initial phase of the crisis, the ICC says there is still a strong case for state intervention.
Christoph Gugelmann, chief executive at Tradeteq – which has called for a greater distribution of trade finance assets to non-bank investors – agrees that governments have to play their part in supporting banks to extend trade finance.
“Government-backed access to trade finance funds will support economic growth and international trade, and as this is based on the flow of tangible goods and products there is a relatively low risk of default,” he says. “Such support would alleviate financial pressures on small and medium-sized enterprises.”
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| Michael Vrontamitis, Standard Chartered |
Michael Vrontamitis, head of trade Europe and Americas at Standard Chartered, says that without government intervention in backing trade credit insurers there will likely be a big reduction in credit in the market, which would make a recovery much harder and slower. He adds: “Using public sector guarantees for trade credit insurance or trade finance is an effective way of increasing liquidity to vulnerable sectors of the economy and more effective than reducing interest rates as insurers and banks will reduce credit capacity (and therefore liquidity) where they see that their risks have increased.”
