What Is an Export Credit Agency?

Export credit agencies are institutions established by the governments of some countries in order to obtain favorable credit conditions for exporters in export trade and to obtain credit from financial institutions quickly and easily at the lowest possible cost.

Export credit agency

Right!

Export credit agencies are institutions established by the governments of some countries in order to obtain favorable credit conditions for exporters in export trade and to obtain credit from financial institutions quickly and easily at the lowest possible cost.

Export credit agencies are government agencies whose function is to ensure that buyers can obtain loans on preferential terms to pay for the funds needed to purchase equipment, technology or services, thereby promoting the export of domestic equipment, technologies or services.

Chinese name

Export credit agency

Purpose

To get favorable credit terms

Types of

Government agency

Cheng Li

National government

Export credit agencies are institutions established by the governments of some countries in order to obtain favorable credit conditions for exporters in export trade, and to obtain credit from financial institutions quickly and easily at the lowest possible cost. ^[1]

Export credit agencies are government agencies whose function is to ensure that buyers can obtain loans on preferential terms to pay for the funds needed to purchase equipment, technology or services, thereby promoting the export of domestic equipment, technologies or services. Most export credit agencies do this by providing guarantees on bank loans used to purchase equipment. Some export credit agencies may reach this goal directly by issuing loans to buyers through agreements with commercial banks for fundraising or partial participation.

Export credit agencies can offer preferential terms, in part because they can only act as government agencies that support their exporters. Generally speaking, the purpose of export credit agencies is not to make profits, but they will not provide more favorable conditions to their exporters. The export credit agencies of most member countries of the Economic Development and Cooperation Organization have agreed to cooperate with each other, coordinate and standardize their businesses that provide export credit support. These export credit agencies have unified arrangements and stipulated standard financing conditions, and any export credit agency must not violate these conditions.

Export credit is an important source of funds for project financing. Most industrial developed countries in the world have established export credit agencies. For example, the US Export-Import Bank can provide long-term financing and secured loans to private institutions to encourage exports of domestic equipment. The bank also works closely with Private Export Finance Corporation (PEFC), which provides medium-term financing for US exports. Other countries also have export credit agencies, such as the Export Development Corporation (EDC) in Canada, the Export Credit Guarantee Agency (ECGD) in the UK, and the Export Insurance Division (EID) in Japan.

The loans provided by export credit agencies have long maturities and favorable interest rates, but there are some additional conditions, such as the need to purchase domestic machinery and equipment and the need to provide loan guarantees. The eligibility of export credit agencies to participate in project financing depends on the provisions of their national laws and their constitutions. Generally speaking, as long as the equipment used in project construction is imported from the country where the export credit agency is located, these institutions can provide financing. As to whether the financing can be arranged as project financing, the export credit agencies of different countries have different attitudes. The Export-Import Bank of America has extensive experience in assessing the feasibility and risks of projects and is willing to provide financing without recourse or limited recourse; export credit agencies that do not have this ability and experience are unwilling to provide project financing.

The main preferential terms offered by export credit agencies under standard terms include the following:

1. Long loan term. In developing countries, loans for most projects can last up to 10 years after project completion, and loans for power plants can last up to 12 years.

2. Low interest rates. The interest rate during the loan period is fixed and is the standard minimum interest rate.

3. Through political risk insurance, or because banks view loans guaranteed by export credit guarantee agencies as the credit risk of the government of the export credit agency rather than the borrower.

The scale of risk-taking support from export credit agencies around the world for flood escalation is huge, and these agencies provide non-OECD member countries with medium and long-term insurance and credits of about $ 90 billion per year.

Export credit agencies regard project financing as an important part of their business, and major export credit agencies have improved their capabilities and levels in project financing. And deal with project financing export credit in a flexible and tailored manner. For example, the UK Department of Export Credit Guarantee (ECCD, which has been providing export credit support since 1920, is the longest and most experienced export credit agency in history.) 17 billion guaranteed in the past 5 years Of the pounds, nearly £ 1 billion is related to project financing.

Just as commercial banks are reluctant to involve "political risk", export credit agencies are not experts in assessing business risks. Therefore, the role of export credit agencies in project financing is to supplement and support rather than replace borrowing by commercial banks. For example, ECGD will provide all risk guarantees on the amount of export credit loans together with accrued interest, and the amount of export credit loans can reach 85% of the value of export contracts. However, ECGD only supports a maximum of 40% of the project's capital cost, or in conjunction with other export credit agencies, supports a maximum of 60% of the cost. The remaining financing should include the sponsor's reasonable contribution (generally 25%), and at least 15% of the financing provided by the commercial lender.

1. The reasons why export credit agencies are willing to share risks with commercial banks are:

(1) The project sponsor is experienced, bears long-term responsibility for the project, and has the ability to complete the project.

(2) Government support for the project.

2. The way in which export credit agencies and commercial banks share risks.

(1) Separate loans. Export credit agencies issue or guarantee special export credit loans under the unified conditions of the Organization for Economic Cooperation and Development, which is different from loans lent by commercial banks on market conditions.

(2) Share the loss of export credit loans. For example, export credit agencies share 75% of losses and banks share 25%; or share losses based on the reasons for loss of export credit loans, such as losses caused by political risks for export credit agencies and losses caused by commercial risks for banks.