Trade lobby calls Basel banking rule exemption

PARIS: Tougher Basel III capital adequacy rules for banks may be tweaked to grant an exemption to the "crucial" activity of trade finance, the International Chamber of Commerce (ICC) business lobbying group said on Monday.

The ICC has spent the past year trying to persuade the Basel rule-setting committee that the banks' role in keeping the wheels of global trade turning is too important to be stifled with the same requirements on solvency ratios as other lending activities.

Against the backdrop of a slowing global economy and the unfolding euro debt crisis, the ICC is hopeful there will be an exemption, its secretary-general told reporters at a briefing lunch in Paris.

"We are hoping, and certainly it's our expectation, that there will be (an exemption)," said Jean-Guy Carrier. "I think everyone will be seeing some light there."

Trade finance can cover a wide range of products such as letters of credit as a guarantee of payment, credit insurance and factoring -- or the sale of invoices in exchange for cash.

Although banks have been warning against Basel III's potential impact on trade finance for more than a year, in recent months there have been signs that the pressure to boost banks' capital cushions is already starting to affect the real economy.

Big French banks including BNP Paribas and Societe Generale have announced a winding down of certain US dollar-denominated activities like aircraft financing, citing a sharp ramp-up in the cost of funding as jittery US money markets take fright at the euro debt crisis.

"(There is) a crisis that's emerging in some parts of the world on trade financing," said Carrier.

"Trade financing for small companies that export has dried up in developing parts of the world in some cases and become very tight everywhere."

Copyright Reuters, 2011