ADB, Swiss Re sign agreement to boost trade Finance in Asia

As part of an innovative agreement to boost exports and imports in developing Asia, re/insurance giant Swiss Re will insure $250 million of trade finance conducted via the Asian Development Bank’s (ADB) Trade Finance Program.

The move marks the first time that the Swiss Re Group, through its commercial insurance unit Swiss Re Corporate Solutions, has provided insurance via a trade program run by a multilateral development bank and also the first time ADB’s Trade Finance Program has offset risk with a private insurance company.

Asia’s economy is growing rapidly, but that is largely due to the exporting prowess of a handful of countries led by the People’s Republic of China, along with a few others such as the Republic of Korea and Singapore. Many other Asian nations, by contrast, find it difficult to export or import key goods because they struggle to get the trade finance they need from international and local banks.

To fill that gap, the ADB’s Trade Finance Program provides guarantees and loans to banks to enable them to provide trade finance, particularly in so-called frontier economies.

In 2010, the program supported 783 trade transactions worth $2.8 billion, with banks in Bangladesh, Viet Nam, Pakistan, Sri Lanka and Nepal the five most active users. Demand in the first quarter of 2011 grew at just over 50% year-over-year across Asia.

The agreement with Swiss Re Corporate Solutions will allow ADB to provide even more trade finance support to the countries that need it most. Transactions under the Trade Finance Program tend to be short term – usually less than 180 days – so financing can be rolled over.  As such, the additional $250 million in capacity through the arrangement with Swiss Re Corporate Solutions could result in around $500 million in additional trade finance support per year for developing Asia.

 “ADB’s program has been remarkably successful in bridging market gaps currently constraining the financing of trade within some of our member countries.  

By partnering with the Bank Trade and Infrastructure Finance unit of Swiss Re Corporate Solutions, we ensure that ADB remains responsive to the needs of developing Asia. More trade means jobs, higher incomes and lower poverty,” said Philip Erquiaga, Director General of ADB’s Private Sector Operations Department.

A pioneering study released late last year by the Triple-A rated ADB and the International Chamber of Commerce provided data showing the low-risk nature of trade finance.  The survey of nine banks active in trade finance showed defaults of only 0.02% of 5.2 million transactions worth $2.5 trillion conducted in the past five years. ADB’s Trade Finance Program has never suffered a default. “We are delighted about this first transaction with ADB,” said Ivo Menzinger, Managing Director of Global Partnerships for Swiss Re. “ADB is a key partner for us in bringing financing solutions to support economic development in Asia across a broad spectrum of risks.

With the expertise of our trade credit specialists at Swiss Re Corporate Solutions, we can provide an alternative source of capital to banks, governments and international financial institutions beyond traditional risk mitigation strategies.

This deal demonstrates our commitment to provide innovative solutions and capital support in emerging markets through partners such as the ADB.”

ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth and regional integration.

 Established in 1966, it is owned by 67 members  -  48 from the region. In 2010, ADB approvals, including co-financing, totaled $17.51 billion. In addition, ADB’s ongoing Trade Finance Program supported $2.8 billion in trade.

Swiss Re Corporate Solutions offers innovative, high-quality insurance capacity for single and multi-line programmes worldwide. Swiss Re Corporate Solutions offers its capacity on a stand-alone basis or as part of structured and tailor-made solutions.

In addition, it provides customised risk transfer solutions to large, multinational corporations across the globe to assist in mitigating their risk exposure. Swiss Re Corporate Solutions serves more than 50,000 customers across a network of 38 offices worldwide and is backed by the financial strength of the Swiss Re Group, a leading and highly diversified global reinsurer.