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
-2 -1 0 1 2 3 4 5 6 7
Advanced economies
CIS EM Asia EM Europe Latam MENA Sub-Saharan
Africa
Real GDP growth
2016 2017 2018 2019
IMF WEO April 2018
> 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
Credit Insurance - The Solution for your International Risks
Global context
4
2 2,5 3 3,5 4 4,5
5 Exchange 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
> High (and sometimes growing) private indebtedness
Company debt is rising
Credit Insurance - The Solution for your International Risks
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
Exchange rates
Credit Insurance - The Solution for your International Risks
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
Credit Insurance - The Solution for your International Risks 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 Developing Asia (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
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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 !
Credit Insurance - The Solution for your International Risks
What can go wrong?
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
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
Credit Insurance - The Solution for your International Risks
Risk management through credit insurance
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
Risk management through credit insurance
Traditional credit insurance :
> Whole turnover (ST)
> Special Cash Transactions (ST
and MLT)
Whole turnover
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
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Cash Payable / Special Transaction (progress payments)
Credendo: your partner for international business
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
24 Credit Insurance - The Solution for your International Risks
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
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
Credit Insurance - The Solution for your International Risks
Forfaiting
> 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
Exemple
Buyer Credit
Buyer credit
Credit Insurance - The Solution for your International Risks 32
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 .
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
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
Credit Insurance - The Solution for your International Risks
Buyer Credit
Scheme
Buyer Credit
36
This is how it works
Credit Insurance - The Solution for your International Risks
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
Credit Insurance - The Solution for your International Risks 38
>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
Credit Insurance - The Solution for your International Risks 40
>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
Credit Insurance - The Solution for your International Risks
Credendo’s PRI
>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
✓ 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: your partner for international business
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 Agency
Business lines and tools
Credendo App’ : tool available on iPhone or Androïd
Credendo – Export Credit Agency
Credendo: your partner for international business 48
Product wizard available on Credendo website
Credendo – Export Credit Agency
50
Do not hesitate to contact us for further information!
Credit Insurance - The Solution for your International Risks
