WHAT’S KEEPING COMMODITY FINANCIERS AND INSURERS UP AT NIGHT? KEY THEMES FROM EXCRED COMMODITIES – Co Authored by Deepesh Patel, TFG and Dean Forrester, ExCred Series



The ExCred event hosted the launch of Trade Finance Talks TV which, in partnership with the ExCred Series, spoke to some of the key players in commodity finance. Is it Basel, not Brexit, keeping the industry awake at night?

Appetite Grows, Capacity Remains Abundant

On the credit and political risk front, appetite is matching the gradual growth in world trade, according to the Berne Union. They chalk this appetite growth up to supply chains moving away from China, Brexit, and escalating tensions in the gulf impacting the supply of oil and gas.

The private market continues to have an abundance of capacity, driven partly by low-interest rates but also a rise in institutional investment into credit insurance, who are looking for higher returns than state bonds.

On the Export Credit Agency side, market capacity also remains high, with ECAs now developing more debt finance products for SMEs rather than just insuring risk.

The Digital Era Beckons

Commodity finance continues to attract innovation and disruption, due to the paper-based nature of the industry. Blockchain or not, standardisation and interoperability are at the forefront of many of the consortia that have formed.

There are several initiatives, from VAKT and komgo, to the industry-wide initiative with Glencore, ADM, Bunge, Cargill, COFCO and LDC. The looming megatrend? A consolidation of all services under a single platform.

Insurance/Bank Cooperation and Basel 3.5

Regulators continue to implement strict capital requirements for banks through Basel III and the CRD IV. This impacts commodity financiers because more risk-weighted assets need to be allocated by those banks on every transaction. January 2022 is when the so-called ‘Basel IV’ framework comes into effect, but this could shift the risk mitigation behaviour of banks, particularly around ways of managing credit.

For the credit insurance community, there were two main concerns highlighted: the extent at which Basel IV might impact the demand for this insurance, and the overall effectiveness of credit insurance as a risk transfer tool to free up capital and distribute assets, according to Davide Guidicelli at SwissRe.

ExCred Commodities took place on September 17, 2019 in London. Next up in the series is the 30th anniversary of ExCred International.