POLITICS rather than economics is hindering banks from lending to small- and medium-sized enterprises, a report claims.
Research by trade finance data supplier Coriolis Technologies warned trade wars and political tensions between countries have more of an adverse effect on how banks lend then actual systemic financial risks.
It found that trade rhetoric has been increasingly weaponised, citing the use of US President Donald Trump’s ‘Make America Great Again’ slogan, while political risks such as corruption, conflict and terrorism have also increased.
This all impacts the markets banks focus on, particularly trade finance as it can be harder to trace and conduct due diligence on the full supply chain.
“Banks and payments systems are exposed to sanctions and tariff regimes through the supply chains of their clients: large corporates are moving their supply chains around to manage the risks of higher costs of tariffs or the imposition of sanctions,” the report said.
“This is an additional hurdle for banks which makes trade finance risky. Banks have the potential to stay ahead of the game through big data, artificial intelligence and machine learning: new technologies have the potential to reduce costs, ease due diligence and provide a more tailored service to smaller clients.
“However, banks are challenged by legacy systems that make upgrading their systems to compete with non-banks to provide services to SMEs cumbersome and expensive.”
Rebecca Harding, chief executive of Coriolis Technologies, said a lack of political leadership in the immediate aftermath of the financial crisis has created a tide of populism which has led to economic nationalism and trade wars.
“Coupled with the clampdown on financial institutions, there has been a ‘perfect storm’ for SMEs globally, who have been starved of the funding they need to trade and grow over the last decade,” she said.
“The tit for tat approach to the imposition of sanctions and trade tariffs has served to further stifle small business growth and is contributing to the rapid erosion of international relations, on the global stage.”