* Signs of recovery in trade finance, but uneven - WTO
* Particular concerns in Kazakhstan, Ukraine
* Bank defaults there pose systemic risk to trade finance
GENEVA, Sept 22 (Reuters) - The danger of bank defaults in Kazakhstan and Ukraine poses a risk to trade finance markets, the World Trade Organisation (WTO) said on Tuesday.
Trade finance liquidity has improved for larger banks for funding of up to one year in some regions, the WTO secretariat said in a report on a meeting of trade finance experts held last week.
But liquidity was still lacking in Africa, Central America, key East European countries, some low-income countries in Southeast Asia and in Central Asia, it said.
“Participants expressed concern regarding the situation in Kazakhstan and Ukraine, where perceived risk was very high and bank default could have systemic repercussions in trade finance markets,” it said.
Trade finance — simple, traditional forms of credit that oil the wheels of the $16 trillion of world trade in goods each year — was an early victim of the financial crisis last year as banks feared to export and import shipments for each other’s clients.
The drying up of credit, as prices for trade finance where available soared to 500 basis points (five percentage points) or more above policy rates, contributed to a sharp fall in trade, forecast by the WTO to contract by 10 percent this year.
The WTO has convened meetings since late last year of practitioners of trade finance from commercial banks, export-credit agencies and international financial institutions.
In April, G20 leaders proposed injecting $250 billion in the market to get trade moving again.
The WTO report said the G20 package had improved capacity in the market and new programmes were starting to deliver but had not been fully taken up, partly because they were too bureaucratic.
Another issue preventing use of the package were tight restrictions on bank lending under the Basel II banking regulations, which conflicted with the need to promote trade finance, it said.
The WTO report said trade finance had improved for big emerging economies like Brazil, China and India — where state institutions have channelled credit into trade — but smaller banks were still facing problems.
It said trade finance was starting to stabilise following the sharp fall in trade volumes in the last quarter of 2008 and first quarter of 2009.
Prices which had increased in the first half of the year, declined during the summer as tight liquidity began to ease.
“A decrease in the probability of default of bank customers has contributed to making trade finance attractive again relative to other kinds of lending, and hence contributed to market easing,” it said.
China in particular had helped to increase competition and reduce prices in trade finance, while Chinese purchases of commodities were part of a general recovery of trade in Asia. (Reporting by Jonathan Lynn; Editing by Stephanie Nebehay)