Global Business Intelligence completes first Benchmark around Basel II capital allocations for Trade Finance

Vancouver B.C. – January, 2010 – Global Business Intelligence (GBI), a leading provider of syndicated and proprietary research around international financial supply chain and trade credit topics, today announced that it has completed the first Trade Capital Benchmark with leading European and North American banks to benchmark capital allocation. At a time when banks are radar focused on raising and managing their scarce resource– capital, the economy continues to demand trade credit to keep business flow moving.

For the eleven banks that participated, significant differences appeared for Capital reserved under Basel II for both Corporate and Financial Institution trade finance Transactions. For corporate transactions, Basel II reserves ranged from $5.2M in capital to $12.9M for a $170M portfolio of trade transactions. For Financial Institution transactions, the range was $2.5M to $8.1M for a $140M trade portfolio.

Data revealed Basel II continues to be a major problem in the trade finance community as it sucks out what capital is available to support trade. The perception exists that many Banks are not lending because Basel II is punitive to the trade business and this comes at a time when regulators, investors, and rating agencies are forcing banks to increase capital ratios.

David Gustin, President of GBI, commented, “Banks need a systematic approach to compare their capital allocations, which are so critical to trade finance pricing, particularly at the non investment grade spectrum. Due to the unavailability of relevant data covering realized losses for trade transactions, comparing bank data can be very helpful. Although banks have started gathering such information in recent years, it is both not publicly available and very difficult to obtain on a comparative basis.”

GBI undertook this benchmark to help banks understand the consensus of the market to compare if their own model outputs are Above, At, or Below the market for capital for each transaction and for the overall portfolio. Each bank calculated capital reserves and Loss Given Default (LGD) percentages based on their models for a hypothetical Trade Finance Portfolio. GBI expects to conduct this again on a quarterly or semi-annual basis to develop longitudinal analyses.

If you would like more information, please contact David Gustin at 604.924.0851 or dgustin@globalbanking.com