Partner Article

EU capital requirements rules could risk SME exports

New EU rules on capital requirements risk jeopardising SME’s access to trade finance, and therefore could impact on exports, Barclays has warned.

At a European Parliament roundtable discussion, hosted by Bendt Bendtsen MEP and Barlcays and the UEAPME, attention was drawn to the impact of the new ‘Basel III’ EU rules.

Kah Chye Tan, global head of trade and working capital at Barclays, noted that Basel III would make for a safer and stronger banking system, but warned regulators would need to work with banks to ensure certain measures did not disproportionately damage the ability of banks to allow SMEs to trade globally.

Mr Tan said: “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.

“EU policy-makers have the responsibility of developing a robust banking environment to support SMEs to create jobs through trade. I

“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 studied over 10 million trade finance transactions, finding a default rate of just 0.00026%, or one in 3,800.

Over 70% of Barclays trade finance customers are SMEs, and Mr Tan said these companies would be disproportionately impacted, causing a knock-on impact on growth.

He added: “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.”

Mr Tan went on to remark on the importance of the removal of the minimum one year maturity for all trade transactions, as well as the elimination of the national discretion to waive the minimum maturity floor.

Other positive changes to the Commission’s proposals were highlighted as: 20% credit conversion factor 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.

This was posted in Bdaily's Members' News section by Tom Keighley .