Trade Credit in Asia

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Trade Credit in Asia
3d Meeting of FAIRSeoul 10/11 November 2003
Paolo Santella Bank of Italy and OECD
2
Trade Credit

• Definition short-term delays of payment to
  buyers by sellers

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Trade credit in Asia

• 1. Quantitative data
• How important in the financial structure of
  businesses?
• - Apart from Italy, no systematic data available
• Italy trade credit comparable to short-term
  banking credit

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Trade credit in Asia

• 2. Qualitative data
• Available literature (not referred to Asia)
• trade creditors rarely make recourse to
  preferential rights
• Trade creditors do not receive much in the event
  of debtors insolvency

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Trade credit in Asia

• Advantages of trade credit over banking credit
  (especially whenever insolvency procedures are
  not efficient)
• Ownership guarantees implemented outside of
  insolvency procedures
• b) Minimizing losses
• c) Better credit monitoring compared to banks?

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Trade credit in Asia

• Also...
• A case for ad hoc preferential rights?
• Limitations to ownership guarantees in several
  European legislations
• Limitations in the availability of preferential
  rights suited to trade creditors (e.g.
  Possibility to pledge stock in trade)

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Trade credit in Asia

• Conclusions and Suggestions for Discussion...
• 1. Need to quantify
• necessity of cross-country data on trade credit
• 2. Need to evaluate
• how do trade creditors fare when their debtors
  go insolvent?
• in the wake of the 97-98 economic crisis, has
  there been a NPLs wave for trade credits as
  well?

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• Trade credit in Asia
• ... Keeping in mind the following working
  hypothesis
• Trade credit a resource for Asian economies,
  particularly when banks are beset with NPLs
• case for new preferential rights suitable for
  trade creditors
• do not introduce legal limitations to limit
  trade credit (recent EU legislation)