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G20 up close: Trade and investment

G20 up close: Trade and investment

​​​​​BRUSSELS, 8 March 2017 – The following text is from the WSBI G20 Institutional Positions document​ released this week.

​As the G20 German Presidency highlights, investment growth is frequently regarded as too sluggish, which is not a good sign for the world economy recovery. WSBI welcomes that the G20 will launch a discussion on the opportunities and risks of globalisation. There is no doubt on the value of globalisation, which has created the wealth growth and world economic prosperity.

​Globalisation, social stability, savings and retail banks

However, globalisation has also caused some negative impact such as widening social inequality. In this regard, WSBI believes that the national government in particular those from the developing countries have put in place some measures to promote the social inclusion. Social exclusion, poverty and racism are issues that can cause a vicious cycle for any society. There is a real need to find a breakthrough to improve social stability and harmony. WSBI member banks have been leading the fight against social exclusion via different programmes such as channelling social security payments, providing microloans in particular vocational loans, promoting financial education and integrating vulnerable people in communities through financial education.

Investment: Linking up banks with investors

As far as investment is concerned, WSBI would like to highlight that the role of banks in fostering investment should be well recognized and the capability of banks to fund investment should not be impacted by the evolving regulatory framework such as rules on liquidity. However, economic and regulatory changes have generated the need for new financing models in order to fill the gap between available bank capital and the multi-trillion-dollar medium-term investment programmes. To do so, partnerships between banks and institutional investors should be incentivised to benefit from the know-how of banks and the investment capacity of institutional investors.

SMEs: The backbone of local economies

SMEs are the backbone of economies throughout the world and they should benefit more from globalisation. Increasing SMEs' access to bank credit can help to reduce the supply–demand gap in SMEs financing and should be further encouraged in both developed economies and developing countries where levels of financial inclusion are low. Public credit guarantees are contributing to enhance SMEs' bankability by reducing information asymmetries between lenders and borrowers and are beneficial to support SMEs' access to finance thus having a positive impact on growth and employment. The development of such programmes is necessary to ensure that SMEs access the finance they need for their projects.

SMEs financing, banks and Basel

Because SMEs also play a major role in most economies, adequate capital requirements should be applied to credit exposure to the SMEs segment. The current credit risk framework for SMEs in the Basel framework could therefore be lower. If not, the combined effect of higher risk-weighted assets and higher capital requirements slash credit availability for SMEs. On diverse non-traditional bank financing instruments and channels, most SMEs are microenterprises and that efforts spent in broadening the sources of finance may not be adequate for a large share of SMEs while appropriate for others. Alternative sources of finance such as capital market instruments in a broad sense may be useful for some SMEs in some stages of their life cycle, but should come as a complement to bank lending.

>> Read: WSBI Institutional Positions to the G20 German Presidency

G20; SME finance; Investments; Basel III; Financial education; Banking Distribution Channels; Banking Technology