WT/WGTDF/W/86  
 
16 April 2018  
(18-2280) Page: 1/4 
Working Group on Trade, Debt and Finance   
 
 
EXPERT GROUP MEETING  ON TRADE FINANCE – 26 MARCH 2018  
INFORMAL REPORT BY T HE WTO SECRETARIAT  
1  INTRODUCTION  
1.1.  The objective of the March 2018 meeting was t hreefold : (i) to take stock of the current 
market situation ; (ii) discuss progress on proposals made by the  WTO Director -General in his 2016 
publication: "Trade Finance  and SMEs", notably capacity -building and trade finance facilitation ; 
(iii) trigger a dialogue on correspondent banking and trade finance with a represen tative of the 
Financial Stability Board’s (FSB) Secretariat, who accepted the invitation of the WTO.  
1.2.  In his opening remarks delivered on behalf of the Direct or-General, the Deputy 
Director -General thought that the trade finance gaps had remained high and s table at 
US$1.5 trillion (some 10 to 15% of trade finance markets) and continued to fall disproportionally 
on developing countries, in particular  small and medium -sized enterprises' (SMEs) trade.  Since 
then, progress was made, with WT O Director -General Rob erto Azevê do taking the lead. He had 
met heads of multilateral development banks (MDBs) on the margins of the 6th Aid-for-Trade 
Review and 2017 Fall Meetings of the IMF and World Bank. He had advocated in favor of increased 
intervention by MDBs in poor cou ntries which had been affected by the trade finance impact of 
correspondent banking reductions. In return, heads of MDBs indicated that a dialogue with 
regulators, notably in the area of know -your-customer (KYC) and anti -money laundering (AML) 
could useful ly be conducted to address the trade and development dimension of trade finance. The 
trade finance community effort in favour of ca pacity -building was paying off – the combined 
training of trade financiers by the International Chamber of Commerce (ICC), th e European Bank 
for Reconstruction and Development (EBRD), the International Financial Corporation (IFC, World 
Bank Group) and the International Trade Finance Corporation (ITFC, Islamic Development Bank 
Group) had exceeded 2,500 trainees in 2017, against a n obj ective of 1,000 in the 
Director -General's proposals.  The Director -General of the WTO had a productive call with Governor 
Carney, the chairman of the Financial Stability Board (FSB). The FSB would seek input from the 
WTO and IFC in looking at concrete measures that could help incorporate trade finance in 
addressing challenges related to correspondent banking.  
2  MARKET SITUATION  
2.1.  The meeting started with a review of the current market situation. Global banks confirmed a 
firming up of trade demand in all regions of the world, in a context of sufficient liquidity for the m, 
their largest markets and main customers . The context was one of continued consolidation of 
financial institutions. Although  digitalization held good promises for midcap enterprises and S MEs, 
this category of enterprises had been the main losers of correspondent banking termination s in 
recent years . SMEs were also the most vulnerable company segment in the face of increasing 
compliance requirements. While the emergence of regional banks wa s a positive aspect of bank 
consolidation in the Middle East or Africa, liquidity remained a constraint, particularly for  second 
and third tier banks . South African banks showed greater op timism, but banks active in 
Sub-Saharan Africa noted the deteriorati on of available trade finance in the CEMAC region, and in 
countries facing geo -political issues. Most players in Africa emphasized the lack of US dollar 
clearing  capacity , and noted that multilateral development banks had been asked to play this role. 
The lack of US dollar clearance  affected both exports and imports of essential commodities  in 
Africa . Globally, it was noted that  since the global  financial  crisis, the expansion of non -bank 
facilities (credit insurance and factoring) had  been offsetting  part of the reduced exposure of 
banks . In the past couple of years, though, international factoring flows had been less dynamic . WT/WGTDF/W/86  
 
- 2 - 
 
  2.2.  The improve ment in the global trade outlook did not result in  a significant improvement of 
trade finance market conditions at the lo wer end of the market. The global trade finance market 
gap had  remained "sticky", at around US$1.5 trillion. The upcoming 2018 global trade finance 
survey by the ICC revealed that 70% of trade finance requests by midcap  enterprises  and SMEs  
had been reject ed, against 10% for large companies. The Banking Association for Finance and 
Trade (BAFT)  confirmed the continued pressure on smaller and regional banks in the United States 
to reduce their size. This  meant that SMEs faced continued challenges in accessing  trade finance. 
Companies had  a greater recourse to non -bank finance , but only when available to them. Very 
large corporati ons globally active in the capital equipment and  renewable energy sectors confirmed 
an increased demand for financing  to them  by their suppliers , due to a lack of bank support . They 
highlighted the long delays applied to them when opening bank accounts for corporate operations. 
Asian participants described an environment in which the combined effects of KYC -AML 
requirements and stricter caps on lending had  tightened available liquidity . 
2.3.  MDB support of small trade transactions in the poorest countries were a mirror of trade 
finance gaps. Demand had never been so high, notably in view of the reduced interested by 
international  banks, and a heightened perception of AML-KYC regulatory risk. The Chief Executive 
Officer  of ITFC shared his concern regarding the poorest countries of the Organization of Islamic 
Co-operation (OIC). He emphasized the growth of the ITFC portfolio  in trade fin ance, in particular 
towards SMEs, and  an increased involvement in trade finance training. He deplored the fact that 
the trade finance gap  had remained  high and stable over the years, and called for joint operations 
with other MDBs. The IFC confirmed the in crease in demand for its facilities (guarantees, reverse 
factoring, supply chain finance) in the face of food crises in some countries, increased AML and 
KYC risk perception, and reduced correspondent banking links. The IFC correspondent banking 
survey of 2017 had shown that three -quarters of the surveyed international banks had cut credit 
lines in developing country  markets.  The IFC confirmed the African Development Bank and (AfDB) 
and Afreximbank’s diagnosis that upstream correspondent banks in Africa had  been cutting links 
temporarily or permanently, leaving significant US dollar shortages. The representative of the AfDB 
said that if the Africa Trade Finance Gap study was to be updated now, the trade finance g ap 
would be larger than the US$ 110-120 billion  gap estimated in 2016. The AfDB was no longer only 
receiving requests for US dollar facilities from the private sector, but also from central banks. The 
Afreximbank, which operates in 51 African countries, confirmed this vie w. It described itself as a 
correspondent bank for other banks in view of the shortage of private banks playing this role. 
Many local banks faced difficulties in meeting the costs of compliance, and the need for training 
was immense. It was mentioned that several African countries had l ost access to US dollar 
clearance  in 2017 : Sierra Leone, Madagascar, Soudan, Angola, Ethiopia, to name a few . MDBs had 
been providing emergency trade finance support.  The Afreximbank plann ed to develop an African 
Guarantee Program in the month s to come.  
2.4.  The EBRD also attributed part of the trade finance gap in its countries of operations (CIS 
countries, Balkans, and countries from the Mediterranean region) to the lack of correspondent 
banking relations. Despite the fact that it provided for 100% guarantee f acilities, the EBRD was 
not finding counterparty banks for several countries, either because the commercial risk was too 
high (Greece, Ukraine) or because the transaction amounts were considered to be too small 
(Armenia, Moldova, Kirgizstan). The EBRD had engaged into a comprehensive effort in training 
compliance officers of banks, creating correspondent banking departments for these local banks in 
addition to its traditional activities of shaping trade finance departments. In addition, it had set up 
a loca l AML -KYC repository of information from local banks. Other MDBs  have undertaken similar 
steps.  
2.5.  The Asian Development Bank reported a 40% increase in the demand for its facilities. The 
ADB had supported 3,500 trade operations in 2017, involving 2,800 SMEs.  Its programs focused 
on Asia's  less-developed countries . Its m ain markets were Vietnam, Cambodia, and Pakistan. The 
demand was so high that staff would in 2018 request to the ADB Board of Director s an increase of 
its programs.  
2.6.  All in all, MDBs had increas ed their support to trade operations in 2017 by more than 30%  
relative to the previous year, from around US$20 billion to close to US$30 billion. A further 
increase was expected in 2018. However, this was only a "drop in the ocean", as the global trade 
finance gap had been estimated to be close to US$1.5 trillion, half of which was in developing Asia, 
US$200 billion of which was in Latin America, a similar amount in Eastern Europe, and ove r 
US$100 billion was in Africa.  WT/WGTDF/W/86  
 
- 3 - 
 
  3  DISCUSSION ON COOPER ATIVE ACTIONS  
3.1.  Efforts were made to scale up trade finance facilitation programs, in one direction or the 
other: either by extending countries' coverage, or by supporting new categories or banks and of 
traders. Demand for supply chain finance programs was increasing. MDBs had been flexible in 
responding to such demand. Innovative products had also being proposed to operators (factoring 
arrangements). The ITFC pleaded for more cooperation between MDBs, which  included the 
creation of a trade finance fund for SMEs.  
3.2.  Regarding capacity -building, the year had been exceptional by all standards. The ITFC, IFC, 
EBRD, Afreximbank had all increased their training programs. The ADB had merged its e -learning 
trade finan ce program with that of the International Chamber of Commerce's Academy, which 
delivered 1,200 qualifying courses in 85 countries. The 1,000 trainee's objective was significantly 
outpaced. It was acknowledged that trade finance training needed to incorpora te a greater module 
on compliance as local banks and trade finance officers were far from being clear about due 
diligence requirements. Factoring International and the Berne Union also had their own training 
institutes and links had been established with o ther institutions' courses.  
4  DIALOGUE WITH A REPR ESENTATIVE OF THE FS B SECRETARIAT  
4.1.  The Director -General of the WTO and the Chief Executive Office of the IFC had jointly written 
to FSB's Chair Governor Carney in the fall of 2017 to highlight the impact of re ductions in 
correspondent banking relationships on the poorest parts of the world, and the difficulties this had 
created for financing and supplying essentially imports and allowing essential exports from these 
countries. In a productive follow -up call, Go vernor Mark Carney and DG Roberto Azevêdo agreed 
to work together on identifying concrete steps that would help integrate the trade finance 
dimension in FSB work addressing the fall in correspondent banking.  
4.2.  A representative of the FSB Secretariat presente d the FSB action plan on assessing and 
addressing the decline in correspondent banki ng, as well as recent progress – as reported by the 
FSB to the G20 meeting of Finance Ministers in March 2018. Prior to the meeting of the Expert 
Group, the representative had circulated relevant documents, in particular recently modified 
international guidance on AML -KYC and financial inclusion, correspondent banking services, etc. 
Other work on trends in correspondent banking, the development of information utilities and o f 
Legal Entity Identifier, had been brought to the Expert's attention. Prior to the meeting, it had also 
been noted that the Progress Report of the FSB to G20 Finance Ministers and Central Bank 
Governors, on the action plan to address correspondent banking  decline, said, in page 8: "the 
reduction in correspondent banking relationship may affect trade finance transactions that rely on 
correspondent banking arrangements to be processed, and may thereby impact some countries, 
especially those that depend on tr ade for their development or the access to basic supplies. The 
FSB, with inputs from the WTO and the IFC, will therefore explore whether and how some of the 
solutions already developed can be further elaborated to better capture the trade finance 
component s of correspondent banking".  
4.3.  The FSB Secretariat representative highlighted the four areas in which the FSB had 
developed solutions and how these solutions could be further elaborated to better capture the 
trade finance compo nents of correspondent banking.  
4.4.  Regarding data collection and analysis, the FSB Secretariat representative showed that, for 
overall financial flows, the number of correspondent banking relationships in the world had fallen 
significantly (an overall 15% reduction since the end of the fin ancial crisis), and continued to fall in 
aggregate, according to the latest statistics. The statistics showed that the most affected regions 
were Eastern Europe, Latin America and the Caribbean's, Africa and Pacific Islands. The situation 
was stabilized in  North America and some countries of Eastern Europe, but in many countries, 
financial flows related to trade relied on a handful of remaining correspondent banking relations 
with the rest of the world.  
4.5.  Regarding trade finance, existing data collected under  the FSB -IMF-SWIFT effort presumably 
covered already the settlements of trade finance transactions. However, it could be examined 
whether other categories of SWIFT messages could be enriching the statistics. One comment was 
that existing SWIFT information was focusing on letters of credit. However, intra -bank letters of WT/WGTDF/W/86  
 
- 4 - 
 
  credit, where two subsidiaries of the same global banks were the issuing and endorsing a letter of 
credit, was generally not treated through SWIFT – at least two of the main global banks con firmed 
this. Therefore, SWIFT statistics minimized letters of credit flows. It was not clear how to collect 
information other than through SWIFT. Another comment was that, as a mode of financing, supply 
chain finance had recorded the strongest growth in th e past decade. Supply chain finance solutions 
could take several forms and be incorporated in several messages (from overdraft facilit ies to 
outright lending, etc.).  
4.6.  The questions regarding the clarification of regulatory expectations, capacity -building an d 
technical tools (legal entity identifier, KYC repositories) were actually discussed together, as they 
were related. Large banks lauded the increased clarity regarding what was asked from them in the 
area of trade finance and the increased partnership wit h regulators from large countries. The Basel 
committee assessment program was welcome. Some banks noted that a better definition of 
correspondent banking was needed as well as a distinction between trade based money laundering 
and trade finance based money  laundering.  
4.7.  However, the problem seemed to lie with the ability of smaller banks, in the rest of the world, 
to comply with different due diligence requirements, the lack of clarity of many jurisdictions on 
existing requirements, the lack of a global forma lized structure of on AML KYC, and the great 
difficulties that local banks faced in managing different flows of information and requirements from 
different endorsing banks and their respective jurisdiction. Another comment was the difficulty for 
local and even international banks to be aware, or in position to implement, of all relevant 
individual trade and financial sanctions applied by the main jurisdictions – the example of specific 
questions contained in the Wolsfberg questionnaire and the difficulty to  answer them was raised.  
4.8.  Several tools were identified by the Expert Group as being useful in addressing these 
problems:  
 increased capacity building for regulatory authorities and local banks, incorporating 
trade, trade finance, trade -related due diligence ; 
 identification of countries most in need of such capacity -building, in relation with current 
correspondent banks scarcity and reliance on ess ential imports and exports;  
 AML/KYC training , with physical and logistical support by MDBs and the WTO would 
complement current efforts  by the FSB ; regional training programs such as the 
Afreximbank's and the IFC's could be used for this purpose;  
 a Public F orum to discuss KYC issues and standardization, with BAFT/ICC support ; 
 discuss the consequences of ha ving in parallel the Legal Entity Identifier (LEI) and the 
Trade Identification Number; explore expanding the role of the LEI in trade finance to 
support standardisation a nd more efficient due diligence;  
 a Scorecard for regulatory authorities;  
 discuss  and p romote KYC registries.  
4.9.  Many of the potential actions discussed by participants, notably MDBs, seem to fit with the 
potential solutions proposed in the FSB presentation. However, more work and contacts will be 
needed to build cooperation on the ground , with WTO and IFC staff coordinating with the FSB 
Secretariat. Nevertheless, the meeting saw an overall positive engagement and some members of 
the expert group may be called to contribute in the coming months.  
 
__________