THE trade financing “gap” in 2022, or the difference between approved applications to finance imports and exports and demand for such financing, widened 47% from 2020 to $2.5 trillion, the Asian Development Bank (ADB) said.
The estimate was issued via the bank’s “2023 Trade Finance Gaps, Growth, and Jobs Survey” brief.
“This increase incorporates the widening of the gap resulting from the COVID-19 crisis and the related increase in rates of rejection of trade financing requests. Ongoing systemic issues linked to macroeconomic factors, geopolitical tensions, and the Russian invasion of Ukraine also complicate matters,” the ADB said.
Companies cited economic uncertainty (23%) and access to financing (22%) as among the barriers to business for this year and the next.
“Around 64% of banks agree that tighter credit due to high interest rates is a major barrier to servicing trade finance,” the ADB said.
“The influence of geopolitical tensions and post-pandemic macro stress — cited by 61% of banks — on the risk appetite of financiers could spill over to the accessibility of trade financing, especially in emerging markets. These factors have the potential to further aggravate the trade finance gap,” it added.
The brief also noted an increasing focus on sustainability and environmental, social, and governance concerns.
The ADB said this presents “transformative opportunities but also risks increasing financing costs, in part through more complex due diligence costs.”
Some 80% of the banks surveyed see sustainable financing as an opportunity and anticipate a surge in demand for related products and advisory services.
“Progress on sustainability is impeded by a lack of harmonized standards and data collection, along with reporting mechanisms to demonstrate compliance,” it added.
The ADB also cited tightening financing conditions, especially for small- and medium-sized enterprises (SMEs).
SMEs had to cope with elevated inflation and rising energy prices, which led to higher operational costs and “eroded already insufficient liquidity levels.”
“Approximately 20% of banks surveyed stated that some trade finance applications, meaning requests from companies for financial support to back their import or export activities, were rejected,” it said.
“The rejected applications disproportionately affected SMEs compared to larger firms. In 2022, while 38% of the applications received by banks were from SMEs, a larger share of rejections (45%) was attributed to these SMEs,” it added.
To further reduce the trade financing gap, the ADB said there is a need to create additional capacity, adopting innovative financing, leveraging sustainability to drive financing for SMEs, and promoting digitalization, among others. — Luisa Maria Jacinta C. Jocson
