The European Union implementation of "Basel III" rules on capital requirements risks jeopardising the provision of trade finance with the greatest impact on Europe's SMEs, according to Barclays.
At a roundtable discussion at the European Parliament
hosted by Bendt Bendtsen MEP and co-hosted by Barclays and
the UEAPME (European SME umbrella organisation), Barclays
spoke about the profound impact new EU rules for capital
requirements (CRD IV and CRR) would have on the ability of
SMEs to export.
Kah Chye Tan, Global Head of Trade and Working Capital at
Barclays, said that much of Basel III would help to make
the banking system safer and stronger and should be
welcomed. But regulators still needed to work with banks to
ensure certain measures did not disproportionately damage
the ability of banks to allow SMEs to trade globally.
More than 70% of Barclays trade finance clients are SMEs
and Tan said that these companies would be
disproportionately impacted if the Basel III regulations
and CRD IV provisions are implemented as they currently
stand, which would have a significant knock-on impact on
growth.
"SMEs are the economic backbone of the UK and Europe and
the current proposals need to be modified to ensure SMEs
will have greater access to trade finance, not restrict
their ability to grow exports," Tan said.
"EU policy-makers have the responsibility of developing a
robust banking environment to support SMEs to create jobs
through trade. It is crucial that the cost of capital for a
low-risk activity like trade finance is differentiated from
high-risk activity".
Recent International Chamber of Commerce research which
examined more than 10 million trade finance transactions
found a default rate of just 0.00026%, or one in 3,800.
"The difference between a 90-day trade finance transaction
and a 10-year Project Finance transaction is as large as
the difference between a 30 day credit card and a 30 year
housing loan. Both Basel III and CRD IV rightly recognise
the difference between a credit card and a housing loan as
there are different correlation curves for these two
products. Similarly, a different correlation curve is
needed for trade finance", Tan said.
Tan welcomed the favourable steps made in the draft
European Commission's report on CRD IV produced by Othmar
Karas MEP, and stressed the need to take these changes
forward in the forthcoming political negotiations between
the different European institutions. Specifically, he
remarked on the importance of the removal of the minimum
one year maturity for all trade transactions as well the
elimination of the national discretion to waive the minimum
maturity floor.
- 20% credit conversion factor (CCF) to apply to medium/low risk products and 50% CCF to apply to medium risk products; and
- Recognition of trade finance transactions as fully liquid assets for the purpose of full liquidity inflows.
Tan welcomed the emphasis put in the CRD IV proposals on the pending results of the trade finance impact study conducted by the Basel Committee on Banking Supervision in relation to the adoption of a separate correlation curve for trade on the basis of these results.
About Barclays Corporate
With a clear focus on quality relationships, Barclays Corporate provides integrated banking solutions to businesses with an annual turnover of more than £5 million in the UK and large local companies, financial institutions and multinationals in non-UK markets. We facilitate the success and growth of our clients by providing lending, risk management, cash and liquidity management, trade finance and asset and sales financing. Additionally, our clients benefit from the breadth of the Barclays Group, through access to the investment banking services of Barclays Capital including debt and equity capital markets, the private wealth management expertise of Barclays Wealth, and the card and payment services of Barclaycard. Barclays Corporate employs over 10,000 people globally. For more information please visit .
About Barclays
Barclays is a major global financial services provider engaged in retail banking, credit cards, corporate and investment banking and wealth management with an extensive international presence in Europe, the Americas, Africa and Asia. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs over 145,000 people. Barclays moves, lends, invests and protects money for customers and clients worldwide. For further information about Barclays, please visit our website .
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