Credit Risk Guarantee
Credit Risk Guarantee
A Credit Risk Guarantee insures the exporter against credit loss related to an export transaction. The guarantee covers the risks due to cancellation of the delivery contract prior to the delivery and/or the credit risk arising from the buyer (commercial risks) or the buyer's country (political and sovereign risks).
- Commercial risks mean the buyer’s inability or unwillingness to pay. The coverage for commercial risks is maximum of 95%.
- Political risks are risks connected with the buyer’s country. These risks are beyond the buyer’s and the exporter’s control. Political risks include restrictions on transfer of currency, rescheduling of debts, war and insurrection. The guarantee coverage for political risks is maximum 100%.
As an official export credit agency Finnvera can’t grant guarantees with a risk period of less than 2 years (manufacturing period + repayment period) to the following markets:
- Austria, Bulgaria, Belgium, Croatia, Cyprus, Czech Republic, Greece, Denmark, Estonia, Finland, France, Germany, Hungary, Italy, Ireland, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom, Australia, Canada, Iceland, Japan, New Zealand, Norway, Switzerland, USA
- New buyers can be approved until 31 December 2021 and export transactions with the approved buyers can be covered until 29 June 2022
As a part of the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak, the EU Commission has announced the above countries as temporarily non-marketable until the end of December 2021. Consequently, Finnvera can consider granting Credit Risk Guarantees with a risk period of less than 2 years to the above countries.
Terms and conditions of the Credit Risk Guarantee
The guarantee can be granted for individual export transactions or for continuous deliveries. It can be used for export transactions with a short-term or a medium/long-term credit period. Cover percentage is normally 75–90%.
The guarantee is granted to the exporter. The export transaction must meet the requirement of
Finnish interest. The terms of payment must conform to accepted international practice.
The buyer’s creditworthiness is generally assessed on the basis of credit reports and the buyer’s financial statements. The creditworthiness of the buyer’s country is assessed by following the economic and political developments in the country.
For exports to the EU Member States and to other Western industrialised countries, Finnvera can normally grant guarantees only if the payment period is two years or longer.
Terms of payment/OECD Export Credit Arrangement
Finnvera complies with the regulations of the OECD Export Credit Arrangement. The OECD member countries have agreed on the terms of officially supported export credits with a repayment period of two years or more. The OECD Arrangement defines interest rates, credit
periods, cash payment requirements and the starting point of repayment.
Cash payment must be at least 15% of the export contract value, and the credit may not exceed 85%. The credit period is determined by the type of goods, the contract value and the category of the buyer’s country. The credit must be repaid in equal and regular instalments not less frequently than every six months, without any grace period.
Buyer countries are classified in two categories according to their GNP. The acceptable credit periods are based on these categories.
The maximum credit periods
- relatively rich countries: 5 years (in exceptional cases 8.5 years)
- relatively poor countries: 10 years.
The guarantee premium is determined separately in each case, and it depends on the creditworthiness of the buyer and the buyer’s country, the terms of payment and the securities provided.
Finnvera charges handling fees for the processing of the guarantee application and the subsequent guarantee.
The beneficiary of the export credit guarantee, i.e. the Guarantee Holder, usually the exporter or the bank, submits a claim for indemnification based on an export credit guarantee with a signed written application. The applicant may also be the transferee of an indemnity right.