The COVID-19 pandemic has harmed almost all major industries. International trade is one of the industries that have been hit the hardest, as precautionary checks and border closures lead to major disruptions around the world. Although there has been a lot of discussion on global trade, there is a facet that has still not been explored. This facet is trade finance, as the sector continues to struggle from the effects of the pandemic. Trade volumes have declined significantly, resulting in lower demand for trade finance products. The companies offering these solutions have been affected as well. Take a look down below to explore what the impacts of COVID-19 on trade finance are.
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How Has Trade Finance Been Affected?
There are two sides to the trade finance sector: the buyer side and the seller side. The buyer side has been severely impacted due to cancelled and postponed orders, with traders no longer needing to use trade finance instruments. The seller side is no exception and has been heavily affected as well. The existing trade instruments are being hit by an uncertain environment. Thus, the high probability of default has led all new approvals to be made in a much more cautious manner.
The financial institutions that offer these instruments are also having to revise their revenue and profit forecasts. The ongoing uncertainty has meant that they cannot guarantee demand will pick up in the near future. Crime threats are also another possibility that looms large. Banks have become highly conservative as well, thereby resulting in a vicious cycle that is impacting the trade industry as a whole. The only viable solution to these problems would be for governments around the world to come together and formulate remedial policies. If there are no impactful strategies, the trade finance industry will continue to suffer.
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To sum up, the trade finance sector is facing multiple hurdles in the current business environment. They are having to revise forecasts and renegotiate contracts. This situation is likely to continue for a while, even after the pandemic is over. For more information about international trade finance, please visit EXIMA’s Media Page.
