Trade Financing in Asia

The Asian Development Bank is expecting a sudden increase in demand for trade financing as European banks limit their lending in the face of the ongoing crisis.

“The trade-finance program is filling persistent market gaps, but it will become even more important,” said Steve beck of ADB. “With some major European banks retrenching from the trade-finance business, we see that the gaps are increasing.”

Beck predicts even more growth in the operation, which is already worth $3 billion. A credit crunch will most affect smaller emerging markets such as Bangladesh, Sri Lanka and Vietnam. There is risk for a collapse similar to that of 2008, which will inhibit growth across the continent and add to the global recession.

Now, European banks are scrambling to raise their capital ratios, and Morgan Stanley estimated that many lenders would lower their leverage by $2 trillion to $3 trillion.

“European banks that had exposure in Asia have had to repatriate some of the money from Asia, and that’s why you see volatility” in the area’s exchange rates, explained Iwan Azis, also of ADB.