(Reuters) - The euro zone debt crisis is affecting trade as companies shy away from dealing with firms and banks in countries deemed at risk of contagion, a senior banker said on Thursday. Tan Kah Chye, London-based global head of trade and working capital at Barclays Bank, said companies were recoiling from doing business on an open-account basis, whereby an exporter ships and delivers goods before the importer pays. An exporter can greatly reduce the risk attached to such 'buy now, pay later' transactions, which make up an estimated 80 percent of global trade, by buying a bank letter of credit. FREE GUIDES AND REPORTS FROM DIANOMI ADVERTISEMENT Facebook Research Report Investing in Facebook - Free Research Report Download Free Now But Tan, speaking as chairman of the International Chamber of Commerce's commission on banking, said firms were also nervous about being exposed to banks away from the euro zone periphery that were at risk of credit rating downgrades. "Corporates are significantly less willing to deal with other corporates on an open-account basis. Corporates are significantly wary about taking bank risk in some of the better-graded EU countries as well," Tan said in an interview. "Definitely there are countries out there that are being negatively impacted," he said. "Generally the safe-haven status of the euro zone has been dented." Greece, at the epicentre of the crisis, was in effect cut off from trade finance long ago. "Even if you were to ask for a market price for Greece, it is very hard to obtain it. And it's been that way for a long time," Tan said. He was speaking at the launch of a ICC survey showing that global trade was unlikely to regain its pre-crisis trend for at least another four years. Trade growth was likely to slow to 5.2 percent this year before accelerating to 7.2 percent in 2013. Growth for all of 2011 was 6.6 percent, driven by emerging markets, but slowed down towards the end of 2011 as the euro zone crisis intensified and banks came under fierce regulatory pressure to deleverage. The cost of trade finance for India almost doubled in the fourth quarter to 215 basis points over a bank's cost of funds from 100 basis points, Tan said. Yet after the European Central Bank eased funding nerves by lending banks 1 trillion euros for three years, India's price fell back to where it had been. "Things are just a lot more volatile than before," Tan said. After the collapse of Lehman Brothers in September 2008, global trade shrank about 30 percent as banks pulled in their horns. These financial problems have diminished but have not disappeared, the ICC warned. "Left unattended, they can still cause irreparable damage to the trade finance industry," the report, based on a survey of 229 banks in 110 countries, said. RISING COST Chief among bankers' concerns is the scarcity of capital. The ICC is trying to convince international bank regulators that trade finance is a low-risk, short-term business and does not need to be backed by as much capital as envisaged under new Basel III capital requirements. The pressure to deleverage to conform with Basel III and European regulations has prompted many European banks, notably in France, to quit the trade finance market or cut back sharply. Trade finance departments were "competing internally for each unit of the bank's scarce capital", the ICC said. Fifteen percent of respondents reduced their trade credit lines to corporate customers last year compared with 12 percent in 2011. This pullback, allied to what the ICC called a disproportionate aversion to risk, was continuing to drive up interest rates on trade finance in a number of countries, especially in emerging markets. The danger was that higher financing cost would be passed on to developed country importers one way or another, Tan said. "World trade will continue to grow with our without Basel III," he said. "But are we able to finance trade at the right price? My fear is that if we do not manage regulations appropriately we'll be paying a lot more than we should."

Source