LONDON Oct 25 (Reuters) – Global banking regulators have tweaked their rules on trade finance after banks warned of damage to trade with low-income countries unless changes were made.
The Basel Committee on Banking Supervision, made up of regulators and central bankers from nearly 30 countries, has allowed banks to take a more flexible approach to assessing the credit risk of trade finance.
“The agreed changes will improve the access to and lower the cost of trade finance instruments for low income countries,” the Swiss-based committee added.
The Basel Committee said it has agreed to waive the so-called sovereign floor for certain trade-finance related claims on banks using the standardised approach for credit risk.
A bank wanting to finance a shipment of shirts from Pakistan, for example, could now assess the credit risk on its own terms and won’t have to take Pakistan’s sovereign credit rating as the most favourable possible credit opinion.
Trade finance experts say such insistence on the “sovereign floor” rule had made trade finance too expensive, even though it was extremely safe.
Countries can make the changes to their trade rules immediately.
The Basel Committee said it made the changes after evaluating the impact of the existing Basel II global bank capital rules and the new Basel III accord which is being phased in from 2013.
It consulted with the World Bank, World Trade Organisation and the International Chamber of Commerce.
WTO chief Pascal Lamy had held a meeting with his expert group on trade finance, which includes representatives from banks such as JPMorgan, HSBC and Standard Bank to decide what message to sent to the Group of 20 leading economies (G20) meeting in Cannes early November.
A source told Reuters this month that a lack of financial guarantors would lead to a return to the days of “suitcase banking” with large sums of cash being lugged from buyers to sellers.