In a recent article by the Financial Times, the articles states that the impending Basel III capital requirements seriously hinder banks when it comes to trade finance lending.
Under the Basel III requirements, banks are required to hold more capital against their lending – which has forced many banks to re-evaluate their lending businesses.
Another by product of this increase in capital requirements is that it could drive up trade finance prices by 300% or more according to the article.
Banks are presently now looking into creating new instruments to lower their capital requirements against their lending activities. These new instruments are similar to CDO’s (collateralised debt obligations) where they sell off slices of their trade finance loans to third-party investors.
It remains to be seen how banks proceed considering the sensitive nature of these types of CDO products since the Global Financial Crisis in 2008.
If you want to learn more about Basel III and its effects on your trade finance business, you’ll want to consider our International Trade Finance training course.
