The Solution for your International Risks · Emerging markets (aggregate) Advanced economies...

Credit Insurance

The Solution for your International Risks

Brussels – 14 June 2018

Risks in international trade

> Strong(er) growth in world trade

> Higher commodity prices

> Strong global growth in the short term

World trade is growing

Global context

Credit Insurance - The Solution for your International Risks

-2

-1

0

1

2

3

4

5

6

7

Advancedeconomies

CIS EM Asia EM Europe Latam MENA Sub-SaharanAfrica

Real GDP growth

2016

2017

2018

2019

IMF WEO April 2018

3

> Protectionism on the rise

> Geopolitical risks: Middle East, Asia (North Korea and growing/high

assertiveness of China), US/ EU/Russia, emergence of a new order as the

US-led global order wanes

> High and often rising public and private indebtedness

> Normalization of monetary policy accompanied with appreciation of the

USD

Main risks are rising


Global context

4

2

2,5

3

3,5

4

4,5

5Exchange rate (TRY per USD)

Source : Central Bank of

depreciation

> High (and growing) public indebtedness

Public debt is rising


Global context

0

10

20

30

40

50

60

70

80

General government debt (in % GDP)

CIS EM Asia EM Europe Latam MENA Sub-Saharan Africa

Source: IMF WEO April 2018

5

> High (and sometimes growing) private indebtedness

Company debt is rising


Global context

0

50

100

150

200

250

300

Credit to Non financial sector from All sectors at Market value (in % GDP)

Emerging markets (aggregate) Advanced economies (aggregate)

Source: BIS

6

Global context


Liquidity versus risk appetite

> Rising risk aversion in

international capital markets

> Slump in portfolio flows to EM

in February ’18 and in May ‘18

> Larger numbers of countries

exposed to capital market

> More discrimination among EM

countries expected

EM countries with large domestic

and external imbalances remain

vulnerable to sudden change in

investors’ risk appetite and

tightening of global financial

conditions

7

Exchange rates


Global context

-70 -60 -50 -40 -30 -20 -10 0

Uzbekistani Soum

Congolese Franc

Sierra Leone

Ethiopian Birr

Argentine Peso

Nigerian Naira

Tajikistani Somoni

Gambian Dalasi

Ghana Cedi

Turkish Lira

Exchange rate evolution vàv USD (in %)10 worst perfomers (2017)

Source: Bloomberg (28.02.2018)

-100 -80 -60 -40 -20 0

Venezuelan Bolivar

Angolan Kwanza

Argentine Peso

Turkish Lira

Brazilian Real

Uruguayan Peso

Russian Ruble

Swedish Krona

Tunisian Dinar

Hungarian Forint

Exchange rate evolution vàv USD (in %)10 worst performers (Year to date)

Source: Bloomberg 04.06.2018

8

Forex debt


Global context

0 5 10 15 20 25

Turkey

Mexico

Indonesia

Russia

Argentina

South Africa

Brazil

China

India

Debt of non-bank borrowers in the form of bank loans and debt securities denominated in foreign currencies (in % GDP)

USD

JPY

EUR

Source: OECD Economic outlook 103, May 2018

9


0

200 000

400 000

600 000

800 000

1 000 000

1 200 000

1 400 000

1 600 000

Gross foreign exchange reserves (excl. gold, mio USD)Emerging countries (excl. China)

Emerging and DevelopingAsia (excl China)CIS

MENA

Sub-Saharan Africa

Latin America

Central and Eastern Europe

source: IMF/IFS

10

Global context

Forex reserves

What can go wrong ?

12 Credit Insurance - The Solution for your International Risks

What can go wrong ?


What can go wrong?

Negotiations Sale Delivery Payment

No agreement

Potential client does not

exist / is too small

No guarantees by

potential client

No agreement on

payment terms

Insufficient knowledge

of credit insurance &

export finance

=> NO SALE

Buyer goes bankrupt

Buyer cancels the

contract

Buyer disappears

=> PRODUCTION

COSTS MADE

Unable to deliver, due to

war, embargo, transport

issues, …

Goods delivered but not

received : import refused,

buyer does not pick up the

goods, ...

=> PRODUCTION

COSTS + STORAGE/

REPATRIATION

COSTS, …

Buyer refuses to pay

(excuses)

Buyer disappears

Buyer wants to pay but :

> is not able to pay

(insolvent/bankrupt)

> is not able to transfer

the money (hard

currency shortage)

=> GOODS LOST +

REVENUE/MARGIN

LOST

14

Direct, short-term impact on your company

> Missing opportunities and hence loss of business

> Loss on the contract due to costs without return / margin

In order to compensate a EUR 1 M loss on a contract,

a company with a net profit margin of 10%

needs EUR 10 M of new sales !


What can go wrong?

15

Indirect, long-term impact on your company

> Negative impact of your P&L account for the current year

> Potential negative impact on your balance sheet / solvency for the coming

years

In the end : danger for the future of your company


What can go wrong?

How can we manage these risks ?

Credit insurance

17

What is credit insurance ?

> Insurance against “certain” risks related to commercial transactions

Which claims are covered?

> Non payment :

– delivery -> payment

– payment -> delivery (prefinancing)

> Contract cancellation

> Unfair calling of bonds

> Loss of property


Risk management through credit insurance

18

Benefits from Credit Insurance?

> Protecting your existing business / markets

> Create a competitive advantage by offering more tailor-made payment

conditions

> Increase your sales with existing clients with limited additional risks

> Facilitate sales to new clients / new markets with controllable additional

risks

=> Boosting exports and international trade



19

Benefits from Credit Insurance?

> Prior advise from credit insurer on potential new clients and new countries

based on experience with other exporters a.o.

> Bad risks are eliminated by the credit insurer (“credit insurer is to blame”)

> Support when things start going wrong (experience, know-how, network,

collection, ...)

=> Leveraged risk management



Traditional credit insurance :

> Whole turnover (ST)

> Special Cash Transactions (ST

and MLT)

21

Whole turnover

Credendo: your partner for international business

Credit Insurance - Exports

Characteristics :

Cover of pre-credit and credit risks

Portfolio coverage (no single risk)

Coverage of political risk also possible in case of intercompany

Premiums are based on real monthly/quarterly turnover declarations

Worldwide products and services (not only Belgian) : consumer goods, recurrent

sales, payment terms up to 24 months, …

Very competitive market

22

Cash Payable / Special Transaction (progress payments)


Credit Insurance - Exports

Characteristics :

> Credit insurance for export transactions without credit

> Supply of capital goods and services payable on cash basis (LC possible)

> Comparable to ST export transactions

> Milestones principle : payment as works progress

> E.g.: dredging, construction works, engineering contracts, …

> Coverage for termination risk (expenses incurred) + non-payment by debtor

> Coverage against buyer’s default + political and similar risks

Funded solutions : insurance +

financing

> Forfaiting

> Buyer credit SME


Why funded solutions ?

A combination of several factors:

> The Belgian Government’s declaration to support SME’s;

> Mandate by Credendo’s Board of Directors to focus on SME’s;

> Difficult access to adequate financing on local market for potential buyers

of Belgian goods and services;

> Reluctance of traditional funding sources w.r.t. smaller trade transactions.

By developing the funded solutions, Credendo intends to reduce the

funding gap, in support of Belgian exporters.


What are funded solutions ?

> Two types of funded solutions:

– Forfaiting : discounting of supplier’s credit

– Buyer credit : direct funding of foreign buyer

> Standardized terms and conditions (a.o. tenor 2y to 5y)

> Goal : boost exports by offering funding along with commercial transaction

> Contract must be insurable for Credendo: no insurance => no forfaiting

nor buyer credit

Forfaiting

27

Exemple


Forfaiting

28

> Supplier credits to a maximum of EUR 5 million (credit amount) for which no bank

is willing to provide financing

> Contracts that are in line with OECD regulations. Payment terms:

− minimum 15% down payment

− Credit up to 5 years: six- or three-monthly maturities (equal in principal plus

the decreasing interest amount)

> Payments must be done through bills of exchange / promissory notes

> Contractual interest rate:

− fixed rate (= CIRR rate + margin) calculated on the outstanding principal

amount

− the contractual interest rate may differ from the discount rate but may not be

less than the CIRR rate that applies to the contract

Eligible transactions


Forfaiting

29

> Discounting of 100% of the value of the commercial documents

> Financing of the Credendo – ECA premium if included in the credit

amount

> Contracts in EUR/USD/GBP/YEN/CHF

> Contract must be insurable for Credendo (no insurance => no forfaiting)

Eligible transactions


Forfaiting

Buyer Credit

31

Exemple


Buyer Credit

Buyer credit

Credit Insurance - The Solution for your International Risks32

Credendo – Export Credit Agency offers

directly a financing solution to buyers of

Belgian goods and services in Belgium’s

main trading partner-countries: “buyer credit”.

Initially only limited to China, India, Brazil,

Mexico and Turkey.

Since 01/01/2017 all countries where

forfaiting can be offered are eligible for buyer

credit .

33

Standardized terms:

> Transactions that qualify under the OECD rules (‘Arrangement on

guidelines for officially supported export credits’ (see www.oecd.org)).

> Loan amounts between EUR 2 million and EUR 5 million.

> Currencies: EUR or USD.

> Maximum loan amount: 85% of the total export contract value.

> Maximum loan period: 5 years.

> Fixed interest rate at market compliant pricing.

> Repayment in equal quarterly instalments.

Terms and conditions


Buyer Credit

http://www.oecd.org)/

34

Simple and standardized loan agreement: take-it-or-leave-it approach

The Belgian exporter:

> Has payment certainty upfront upon fulfilling his obligations under the

commercial contract.

> Sees political and payment risks eliminated.

The foreign buyer:

> Receives direct funding for purchase of Belgian goods and services, from

a strong and reliable lender supported by the Belgian state.

Benefits for exporter and buyer


Buyer Credit

35

Scheme


Buyer Credit

36

This is how it works


Buyer Credit

3. Political Risk Insurance

> PRI = political Risk Insurance for Investment

What is PRI ?

> Cover of investments made by a Belgian company in a foreign enterprise

> Cover of political risks only (commercial risks are excluded)

Credendo’s PRI


> 1 policy model for 3 types of investments :

1. Equity Investment = capital participation ‘paid back’ through dividends or sale of

shares / shareholdership;

2. Structured Loans = loans with repayment schedule;

3. Quasi Equity = hybrid instruments containing characteristics from both equity and

structured loans, often loans without repayment schedule.

Credendo’s PRI


> 6 Covered Events with two NEW types :

1. Expropriation

2. Political Violence

3. Business Interruption (NEW)

4. Currency Inconvertibility and Transfer Restriction

5. Award default

6. Embargo (NEW)

Credendo’s PRI


41

> Expropriation

= act(s) which deprive the investor of all or a substantial part of its investment, act(s)

which prevents the investor from conducting its operations or act(s) which deprives the

investor of the use/control of any funds

> Political Violence

= violent act(s) undertaken with a political objective (concept is broader then ‘War),

including terrorism

> Award Default

= non honouring of the award issued by the jurisdiction designated in the agreement

between the insured and the host government

> Currency inconvertibility and Transfer Restriction

= any shortage of hard currency or any act or omission by the local government which

prevents the conversion (partially or totally) of local currency into policy currency or which

prevents the transfer outside the country of the investment


Credendo’s PRI

42

Extension of scope of coverage with 2 NEW types for ‘loss of profit’

> Business Interruption

= temporary inability to conduct the operations of the foreign enterprise as a result of

political violence damage (I.e. damage to material assets caused by political

violence)

! extension of political violence coverage but offered as a separate covered event in

order to focus on it

> Embargo

= imposition of measures by the host government which prevents the foreign

enterprise from exporting or importing goods or services which are essential for its

operations

! measures taken by the host government


Credendo’s PRI

43

> Compensation mechanism

– book value approach for expropriation and political violence (in case of

final loss)

– Compensation for loss of income in case of business

interruption/embargo

> Causation of claim

– Credendo engages to pay compensation for any loss principally caused

by a covered event during the Policy period

> Pricing

– depends on type of investment

– determined for each covered event

– Premium due on an annual basis


Credendo’s PRI

Credendo

> Structure

> Credendo ECA and its mission

> Business lines

> Tools


2017 Credendo - group structure

45

✓ AA rated by S&P

✓ Belgium’s official ECA

Credendo – Export Credit Agency

46

To support Belgian international economic

relations by covering risks relating to

exports, imports and investments abroad.


Credendo Export Credit Agency

Mission

Credendo = Credit insurance solutions

Credendo-Export Credit Agency Solutions

1) Credit insurance

2) Funded solutions (financing buyer and exporter)

3) Financial Guarantees

Tools

1) Credendo Risk App

2) Credendo Website

Credendo – Export Credit AgencyBusiness lines and tools

Credendo: your partner for international business47

Credendo App’ : tool available on iPhone or Androïd



Product wizard available on Credendo website



50

Do not hesitate to contact us

for further information!


Thank you for your attention !

Contact details


Wim Bosman

Business Development Specialist

E [email protected]

T +32 2 788 89 37

M +32 478 631 030

www.credendo.com

Turning uncertainties

into opportunities

Date post:	29-Sep-2020
Category:	Documents
Upload:	others
View:	0 times
Download:	0 times

The Solution for your International Risks · Emerging markets (aggregate) Advanced economies...

Documents