International Trade

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EU capital requirement rules could harm SME exports

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EU rules on capital could harm the ability of SMEs to access trade finance – and therefore to export. 

“SMEs are the economic backbone of the UK and Europe, and the current proposals need to be modified to ensure SMEs will have greater access to trade finance, not restrict their ability to grow exports,” Barclay’s global head of trade and working capital, Kah Chye Tan, tells the Telegraph.

The new capital requirements form part of the international Basel III rules on bank capital. EU rules will require all trade finance loans to be accounted for as at least one-year loans, although most are only made for periods of 30 to 90 days.

This, warns Tan, means that the EU capital rules no longer distinguish between short-term trade finance and long-term loans for larger projects.

One result of the rules will be that banks will need to increase the amount of capital used to support their trade financing arms – thus also pushing up the cost for businesses.

“The difference between a 90-day trade finance transaction and a ten-year project finance transaction is as large as the difference between a 30-day credit card and a 30-year housing loan,” says Tan. “Both Basel III and the EU directive to implement the capital rules rightly recognise the difference between a credit card and a housing loan.”

The new rules must do the same for trade finance, and recognise the different risks between short and long-term loans, adds Tan.

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