Many market experts have expressed concerns that trade finance activities will be undermined by the adoption of the Basel III capital requirements, and the recent announcement that regulators will make these rules less stringent will not do much to reduce the costs suffered.
The declaration made by the Basel Committee on January 6 indicated that while it will give banks more time and greater flexibility in meeting the requirements, and this disclosure brought many participants in the banking industry reduced concerns about the new rules.
However, Euromoney reports that the less-stringent rules will have a substantial impact on trade finance. This area is one where Basel III has generated substantial debate. Various market experts have expressed concerns that the new rules will alter the pricing of trade finance instruments, crediting them with carrying more risk than they do currently. There is speculation that this new methodology of evaluating these tools will make the practice more costly.
“The recent announcement only concerns the liquidity coverage ratio element of Basel III, which actually was likely to have been limited on trade finance anyway,” Mike Regan, head of regulatory developments, international banking at RBS, told the news source.
The Mail & Guardian Online reports that trade finance is generally considered to be a low-risk activity, and data encompassing 11 million transactions reveals only 3,000 defaults.
◦ Asset Liability Management
◦ Portfolio Risk
◦ Sensitivities & Hedging
◦ Stress Testing & Scenario Analysis