WASHINGTON, March 24, 2021—The COVID-19 pandemic is significantly affecting the capacity of banks in emerging markets to supply trade finance and their customers' access to it, particularly in the poorest countries and fragile states, according to a new survey by the International Finance Corporation, a member of the World Bank Group.
IFC's 2020 Annual Issuing Bank Survey offers insights on the impact of COVID-19 on 163 banks participating in IFC's Global Trade Finance Program (GTFP) in 63 countries.
Nearly all survey respondents said that they and their trade finance customers were experiencing significant disruptions due to the pandemic. The extent of the challenge ranges from concerns for bank employees' health to an array of obstacles facing their customers. The survey found that 91 percent of banks mentioned that their customers faced some form of acute cash flow needs, and 99 percent indicated either concern for their own employees' health or operational challenges that their customers faced.
Issa Faye, Director, Sector Economics and Development Impact, IFC said, "In the absence of public data on emerging market trade finance during the pandemic, this survey data is critical to understanding and addressing the challenges to closing the trade finance gap and rebuilding global trade after the crisis."
All sectors and customers were affected by the pandemic, increasing stress on trade and economies. Survey responses suggest that several factors constrain the banks' capacity to support their customers. The banks face increased correspondent banking relationship challenges, with COVID-19 exacerbating problems that had existed for several years. Nearly 40 percent of survey respondents reported some form of correspondent banking stress, including fewer lines, increased pricing/cost, line-limit restrictions, and various forms of increased Anti-Money Laundering/Combatting the Financing of Terrorism (AML/CFT) compliance requirements.
As the crisis disrupted nearly every sector, banks quickly adapted their operations to meet new challenges. However, several negative consequences beyond the control of these banks persist. Over 90 percent of survey respondents said they needed some form of additional support.
"The pandemic shocked global supply chains, disrupted production cycles, worsened existing financial vulnerabilities, and increased volatility across many markets," said Nathalie Louat, Director, Trade and Supply Chain Finance, IFC. "From a trade finance perspective, emerging markets and members of IDA and FCS particularly, need more support than ever before."
IFC—a member of the World Bank Group—is the largest global development institution focused on the private sector in emerging markets. We work in more than 100 countries, using our capital, expertise, and influence to create markets and opportunities in developing countries. In fiscal year 2020, we invested $22 billion in private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity. For more information, visit www.ifc.org.