Export credit agencies and private insurers work hard to boost export trade – Finnvera awarded as the best ECA in 2017
A hundred years ago, the world was recovering from the First World War. The first credit insurers and export credit agencies that provided export risk insurance were founded to boost the post-crisis world trade. Export was needed to back up economic growth and exporters needed both protection against trade-related risks and financing for their operations. Export credit agencies and credit insurers are still needed for the same reasons. Using insurance against political risks and export trade credit risks is a growing trend globally.
In 2017, already 14 per cent of the world’s exports of goods and services was covered with credit insurance, reports the Berne Union, an international organisation of credit and investment risk insurers. The organisation was founded in 1934, and its 85 members from over 70 countries are state export credit agencies, private credit insurers and multilateral insurers, which all provide insurance for risks related to exports and foreign investments. Globally, the combined new business operations of the Berne Union members amounted to USD 14 trillion last year. The sum is only slightly smaller than USA’s GDP and clearly exceeds China’s GDP, amounting to approximately USD 2,000 per every inhabitant of the world.
In recent years, the role of private credit insurers has grown and the private market has gained ground when compared to state bodies. According to Topi Vesteri, Deputy CEO of Finnvera and President of the Berne Union, this is a welcome trend. Vesteri was recently awarded with a TXF Industry Fellowship Award for his lifetime achievements in export finance.
“In a boom market, the share of private operators increases while the share of state bodies does not grow as much. During recession, the tendency is opposite: private operators withdraw and public export credit agencies try to compensate for this market deficiency by adopting an increasing responsibility for export risks,” says Vesteri.
Certain transactions are not possible without export credit agencies
According to Vesteri, state export credit agencies are not making themselves redundant in the foreseeable future, even if people might have sometimes thought and even wished so.
“Private operators will not replace state bodies. Certain large transactions that require a long payment period just cannot be completed without the involvement of a state export credit agency. Another influencing factor is the tighter regulation of banks, which has resulted in ever fewer banks being willing to adopt the responsibility for risks and provide financing for export credits. And regulation certainly will not decrease,” comments Vesteri.
In some cases, state agencies act as providers of direct export credit themselves, without banks’ involvement, or act as the main arrangers, syndicating part of the credit to banks. Furthermore, banks’ interest in handling small export credits is considered insufficient.
Development has led to the situation in which the role of export credit agencies has grown at the international level in large export trade transactions with long payment periods and with more potential risks than average. Adopting the responsibility for such risks was exactly the reason why export credit agencies were founded to begin with. However, it is not all about risks – well-managed export trade can be business that is profitable for the state and has a significant impact on exports and employment. For instance, in Finland an approximately EUR 1.4 billion fund has accumulated from guarantee surplus, acting as a buffer against Finnvera’s potential future export credit guarantee losses.
Asian countries increasing their influence – USA the main target country
Of the European countries, Germany and Italy feature among the largest export credit guarantee providers in the world. At the moment, there are three Asian countries in the top 5, including China whose strong impact on the world economy can be seen in this area, too.
“The significance of the Asian countries as exporters has increased enormously. In fact, the largest export credit provider in the world is China Development Bank – and it isn’t even China’s official export credit provider. The official export credit providers are China Eximbank and the credit agency Sinosure, with the largest volumes in the Berne Union,” Vesteri notes.
“We in the developed countries feel threatened when new exporting countries become more dominant in world trade. On the other hand, the standard of living has improved and entire countries, such as China and India, have risen or are rising from poverty, thanks to globalisation and exports.
Export credits granted and guaranteed for trade to the United States account for the largest share of the entire export credit market.
“Naturally, there are also risks involved with the United States. For instance, last year the largest category among indemnities paid by the members of the Berne Union was indemnities for credit insurance with short payment period, taken out for trade to the United States.”
However, a more significant reason for the top position held by the United States is that the private sector there invests in products that require a long payment period and entail risks related to the sector and economic cycles, for instance.
"Publicly supported export credits are a precondition for large cruise ship transactions. Moulded by the crisis on the finance market the cruise shipping companies are not willing to sign large ship orders without ensuring a long time financing for deliveries that take place after many years."
Finnvera awarded internationally as the best ECA in 2017
Finnvera was ranked as the best performing export credit agency in 2017 in the importers’ market survey conducted by TXF Media, an international export trade and finance media and analyst. The respondents were capital equipment importers throughout the world. Finnvera ranked first in the Importers' Choice and performed particularly well in industry expertise, understanding of business and user-friendliness.
Finnvera was number one customer service and financing capacity. Finnvera improved their last year’s performance in both of these categories.
"In Finnvera we value this survey especially high for the fact that the companies that evaluate us were importers that buy goods from Finnish exporters. Our goal is to promote Finnish exports and more and more often the success in concluding deals depends also on co-operation with the buyer and how the Finnish exporter can offer the buyer a flexible financing", says executive vice president Jussi Haarasilta.
Finnvera imnproved the performance also in deal execution and was appreciated for flexibility.
The Importers’ Choice award was presented in TXF Global Conference in Prague the 6th of June 2018. Finnvera was also awarded in Exporters’ Choice survey as one of the top 3 ECAs that have managed to promote exporters’ business.
"We are very happy to stand out as the ECA that understands the needs of both exporters and importers and businesses. Thanks to our industry expertise we are able to find the best solutions for both parties in a way that also takes Finnvera’s risks of the deal carefully into account."
TXF also granted the TXF Industry Fellowship Award to Finnvera’s Deputy CEO Topi Vesteri for his achievements in export finance industry.
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More information about the awards on TXF Media’s Twitter.
