Trade Finance: Reasons of rejections & solutions

According to the latest Asian Development Bank report, the trade finance gap stands at US$2.5 trillion in 2022.

It appeared that, according to the banks' responses regarding the reasons for rejecting applications:

- 6% are due to the poor quality of application presentations.

- 6% are caused by KYC issues.

- 30% other reasons.

These three reasons account for 52% of the total refusals.

Banks’ limited appetite for credit risk; Country risk and unprofitability reasons account for 28%.

SMEs represents the largest share of rejections, Ie 45% of the applications received from them.

This report shows as well that companies’ perception about reasons of rejection only partially aligned with what banks reported.

These finding merits further analysis and consideration from both side of the industry.

Companies (mostly SMEs) shall improve transparency in matching banks requirements: Present bankable financing proposals; fulfil KYC and due diligence requirements; maintain a high level of risk management and operational procedures…

This will show banks the trust and reliability of the underlying business and then give comfort for financing support.

Banks must consider the underlying business model rather than just the balance sheet and have a tailored approach towards businesses.