Credit Risk Guarantee
Finnvera's Credit Risk Guarantee is renewed
The biggest changes in a nutshell:
- Cover for subsidiaries’ exports possible on a case-by-case basis
- In the future, it is also possible to conclude an agreement on the transfer of right to indemnity taking account of the bank’s capital adequacy regulations.
- As regards continuous exports:
- In the future, Finnvera will itself request credit reports on all risk subjects.
- Granting extension to the payment period always requires Finnvera's approval.
What does the Credit Risk Guarantee cover?
The guarantee covers the risks due to cancellation of the delivery contract during the manufacturing period and/or commercial risks due to receivables from a foreign buyer. The cancellation of the delivery must be independent of the exporter and contrary to the transaction agreement.
The guarantee may also cover the political risk arising from the buyer's country and the sovereign risk when the State is the debtor or guarantor.
- Commercial risks mean the buyer’s inability or unwillingness to pay.
- Political risks are risks arising from the buyer's country. These risks are beyond the buyer’s and the exporter’s control. Political risks include restrictions on transfer of currency, debt consolidation, war and insurrection.
Quicker liquidation of receivables
The Credit Risk Guarantee may act as security for the bank when the bank finances export receivables. The bank finances the exporter's receivables either by granting credit to the exporter (factoring) or by purchasing the receivables in accordance with the financing agreement concluded between the exporter and the bank. The arrangement enables the optimisation of the exporter's cash flow. The exporter must check with its own bank on the possibility of obtaining receivables financing.
What kind of transactions is the Credit Risk Guarantee suited for?
The Credit Risk Guarantee can be granted for individual export transactions or for continuous deliveries. It is well suited to cover both short-term and medium/long-term export credit transactions.
- As regards guarantees for continuous export, the coverage is 90% for both commercial and political risks.
- In individual export transactions, the coverage for commercial and political risks is typically 90%. The coverage can be raised to 95% on a case-by-case basis, depending on, for example, the nature of the project and the payment period.
- If only political risks are covered by the guarantee, the coverage can be up to 100%.
Finnvera may temporarily grant new export guarantees with a short-term risk period (repayment period + manufacturing period less than 2 years) until the end of 2025 to the following countries (“marketable risk” countries):
- The Netherlands, Australia, Belgium, Bulgaria, Spain, Ireland, Iceland, Italy, the United Kingdom, Japan, Canada, Greece, Croatia, Cyprus, Latvia, Lithuania, Luxembourg, Malta, Norway, Portugal, Poland, France, Romania, Sweden, Germany, Slovakia, Slovenia, Switzerland, Denmark, the Czech Republic, Hungary, the United States, New Zealand, Estonia
Due to the EU State aid rules, as an official export credit agency Finnvera cannot normally grant guarantees with a risk period of less than two years to the markets listed above. The service is provided by private credit insurance companies.
Export guarantees are an exception to the rule when:
- the applicant is an exporter that is an SME with an annual export turnover of less than EUR 2.5 million (group review), or
- it is a question of an individual transaction with a risk period of at least 181 days.
Please note that Finnvera’s role is to complement the private credit insurance market, and, even in the exceptional cases mentioned above, the service should be primarily sought from private credit insurance companies.
Terms and conditions of the Credit Risk Guarantee
The Credit Risk 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 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.
Furthermore, in the processing of guarantee applications, Finnvera applies the client identification and KYC (Know Your Customer) obligations to comply with the EU legislation to combat money laundering and terrorist financing.
The guarantee holder usually submits a claim for indemnification based on an export credit guarantee with a signed written application.