Is Trade Finance Getting Too Costly For Banks?

A trade finance bank is a bank that finances and insures the foreign purchases for goods that customers are unwilling to accept the buyers credit for. The Export Import Bank of the United States does this for the United States. By financing these transactions the banks goal is to create and sustain United States jobs by funding the sale of U.S. exports to foreign buyers. This bank takes the transactions that other banks do not want to touch.

Cost Involved

Trade finance itself is not the only thing that is costly. The problem usually lies with the buyers credit and their ability to pay the bank for the money that was fronted in the first place. Bank loans the money to never have it paid back and no product to show for it.

Consequences

The consequences are that the bank is now getting cash poor they front money for a transaction the transaction goes through but the bank never gets its share. So yes all in all trade finance is getting too expensive for banks due to the large hits they are taking when a client does not produce payment. Once the transactions start being paid for on a regular basis the costs of running a successful trade finance business will improve.