05 March 2012

EBF: Ways to address worsening funding conditions in export credit markets

Banks need to accommodate the requirements of the new “Basel III” banking regulations. In some banks, balance sheets are shrinking to bring capital ratios to required levels. Some other banks need to reduce the size of their balance sheet and their loans to deposits ratio. Choices must be made by the management of commercial banks as to which businesses to undertake: relatively low return business such as export credit might become less attractive if a bank has to reduce the size of its balance sheet. Although the EU’s implementing legislation for the Basel rules, the “CRD IV”, allows for assessment periods before the introduction of key new ratios, European banks are already implementing the new rules. As a consequence, some are significantly reducing their export credit business, and others are withdrawing from it.

Possible funding solutions

In Europe, most countries do not have a direct lender for export credit, and recourse to a commercial bank is required to extend any export credit. Today, in a good number of countries, the main obstacle for commercial banks to entering into new export credits is the lack of refinancing solutions.

Among the tools that may be considered useful are the following: refinancing vehicles; vehicles enabling the issue of covered bonds (to refinance banks); for some specific transactions, the possibility of issuing “ECA-bonds” (issued by the final borrower with an ECA guarantee); securitisation guarantees (to ease the issuance of covered bonds, the recourse to investors for a direct refinancing or the eligibility to a Central Bank for loans which are ECA-insured as assets supporting short-term liquidity cover); and inclusion of export credits on the list of eligible collateral at Central Banks.

Full information

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