How Basel III Impacts Trade Finance
Why Trade Finance is Harder to Access—and How to Structure Deals That Still Get Funded
Basel III regulations were designed to make banks safer. But they’ve also made trade finance harder to access—especially for SMEs and emerging market transactions. Understanding how these rules impact lender behavior is essential for sponsors, exporters, and credit fund managers alike. At FG Capital Advisors, we structure trade finance transactions in ways that improve bank capital treatment, reduce credit risk exposure, and keep deals fundable.
What Is Basel III and Why Does It Matter?
Basel III is a global regulatory framework developed after the 2008 financial crisis to strengthen bank capital requirements and liquidity coverage. While the rules aim to improve financial system stability, they’ve also made certain trade finance exposures more capital-intensive for banks—especially when transactions are off-balance-sheet or lack collateral.
Why Trade Finance Gets Penalized
Under Basel III, short-term trade finance exposures are no longer automatically treated as low-risk. Banks must assign capital against undrawn facilities like LCs and guarantees. The more capital-intensive a transaction is, the less likely it is to be approved—unless mitigants are in place. Transactions in higher-risk jurisdictions, or those without clear recourse, often get rejected entirely.
How FG Capital Structures for Better Capital Treatment
FG Capital Advisors designs trade finance structures that help lenders manage capital charges. We:
- Build collateral frameworks aligned with risk-weighted asset (RWA) optimization
- Secure political and credit risk insurance to reduce LGD assumptions
- Prepare detailed credit files to support favorable internal bank ratings
- Offer borrower-side structuring that strengthens facility control
Our work often means the difference between a declined facility and one that clears risk committees—fast.
Looking for Fundable Structuring?
Basel III doesn’t have to be a roadblock. Learn more in our structured trade finance guide or explore our Trade Finance Fund to see how we deliver 7% net returns with institutional risk standards.
Frequently Asked Questions
Why do banks reject trade finance requests under Basel III?
Because off-balance-sheet exposures like LCs or guarantees now require capital to be held. If the deal lacks collateral or proper risk mitigation, it becomes unattractive to banks.
Can collateral reduce capital charges?
Yes. Pledged assets, warehouse receipts, or assigned receivables can reduce the risk weighting and capital impact of a facility.
How does FG Capital help navigate Basel III?
We structure transactions to meet lender criteria, present detailed underwriting files, and secure insurance where necessary—all to improve credit approval rates.
Is this only relevant for banks?
No. Private credit funds and alternative lenders also use Basel III frameworks to assess transactions, especially when participating through bank conduits or syndications.
