* Bankers campaign with regulators on trade finance
* Encountering receptive response
* To present default data and bank survey to G20 in June
By Jonathan Lynn
GENEVA, Jan 28 (Reuters) - Regulators are sympathetic to the possibility of reforming rules on trade finance, but much work needs to be done to demonstrate that it is relatively safe, senior banking industry officials said on Thursday.
Bankers argue that trade finance loans -- simple short-term instruments that are secured against exports and are liquidated with the delivery of goods -- are treated under bank capital rules as if they are much riskier than they really are.
Reviving trade finance, which funds about 80-90 percent of the estimated $15 trillion in annual world trade, but which dried up in the credit crunch, is essential to underpin economic recovery through growth in world trade.
But in the aftermath of the crisis regulators are if anything inclined to tighten rules on bank lending.
Donna Alexander, chief executive of BAFT-IFSA, said that she believed the regulatory treatment of trade finance instruments such as letters of credit was not intentional.
"It's not really in line with the level of risk that historically these transactions incur," she told Reuters.
BAFT-IFSA is the recently merged industry group comprising the former Bankers Association for Finance and Trade and the International Financial Services Association.
RECEPTIVE EARS
Alexander, in Europe for talks with French and British officials, said the association's work to convince regulators of the need for change was just beginning.
"We're still in that educational campaign phase and we've had some very receptive ears," she said.
British trade minister Mervyn Davies called earlier for regulators to relax restrictions on trade finance to reflect their less risky nature.
A survey conducted by BAFT last year showed that many banks -- and a majority in industrialised countries -- found the current rules for trade finance under the Basel II regime discouraged them from extending trade credit.
Alexander said BAFT-IFSA would be conducting a new survey on the market, together with the International Monetary Fund, in time for the June G20 summit in Canada.
Initial analysis of the default rates of trade finance should also be ready for the G20 summit, said Dan Taylor, chief operating officer of BAFT-IFSA and vice-chairman of the banking commission of the International Chamber of Commerce.
The chamber has launched a project with the Asian Development Bank to create a trade finance loan default registry.
Taylor said initial findings, based on a first set of data from 10 banks and then widened to a broader circle, would be presented to the summit.
Bankers hope that the registry will put hard figures on what they already know anecdotally -- that trade finance is much less risky than other forms of credit. Taylor said he did not want to prejudice the conclusions, but said:
"When you talk to individual banks, they are able to tell you what their experiences are."
Trade finance is reviving slowly as global demand picks up, he said.
Major players in the market include Standard Chartered, Deutsche Bank and HSBC.
After drying up in the credit crunch, trade finance received a stimulus at the G20 summit in London last April with a $250 billion two-year package through the World Bank and regional development banks.
Alexander called on governments not to withdraw this package otherwise they risk provoking a new trade slump and recession.
"Our continuing cry is that we're not ready for the public-private partnership to dissipate right now," she said. (Editing by Stephanie Nebehay; Editing by Ron Askew)