Duarte Pedreira, head of trade finance at Crown Agents Bank Banks, offers his insights on the impact of banks’ de-risking efforts on trade finance in leading South African finance magazine, MoneyWeb. In the article, ‘Bank de-risking to affect foreign currency transactions, trade finance’, he explains that as international banks have become more risk-averse, in order to comply with regulation, correspondent networks are facing cuts – with South Africa having lost “more than 10%” of its own relationships with foreign banks.
This is a worrying trend, given foreign currency transactions and cross border trade depends on these correspondent partnerships. “For South African banks to trade and transact in another currency they must have an account in that currency with a foreign bank,” Pedreira notes. “A decline in foreign counterparties is especially likely to affect Africa, which has a significant trade finance gap”. This deficit stands at “between $110 billion and $120 billion” – a conservative estimate from the International Chamber of Commerce (ICC).
The article can be read here (with a subscription).