When GTR Africa‘s editorial board gathered for its annual meeting in Cape Town, talks centred on financing opportunities for local banks, competition from international banks, and how the playing field is being levelled.
- Chris Mitman, Investec
- Nicolas Clavel, Scipion Capital
- Omen Muza, TFC Capital
- Anne-Marie Woolley, Standard Bank
- Irfan Afzal, Triple A Frontier Investments
- Rupert Cutler, NMB
- Tony Uzoebo, Zenith Bank
- Lodewyk Meyer, Norton Rose South Africa
- Sekete Mokgehle, Nedbank Capital
Mitman: What level of cross-border funding is now being originated within South Africa rather than from Europe and elsewhere?
Meyer: I have seen a definite increase in the amount of lines being made available by South African commercial banks to the African development banks, deals like Rand Merchant Bank (RMB) to PTA Bank, RMB to Africa Finance Corporation, and conversely Afreximbank to RMB. I am seeing more of those deals, and the funding is being utilised for either infrastructure in the value chain or for making trade facilities available within those markets.
Uzoebo: From our perspective, I would look at West Africa: Nigeria and Ghana have seen a lot of support of cross-border funding from South African banks. We can look at what Nedbank is doing with Ecobank, which is great, and RMB coming into some leverage corporate finance structures, both in Nigeria and Ghana, inclusive of the setup of local subsidiaries/branches.
Woolley: From our perspective in Standard Bank, we are definitely seeing more interest. If we think about one of the transactions we led last year, for ETG, historically it has been generally dealt with by Standard Chartered, an international bank, but we led two different transactions for ETG as a bank. We certainly see participation by South African banks in transactions that perhaps are still led and in initial syndication by European banks, but definitely South African banks are stepping up to the plate. That is both across the traditional deals like Sonangol and Cocobod, but also other ones that are perhaps smaller, normally under the radar.
Mokgehle: When you look at the South African scene, you realise that economic growth projections do not point to a significant pipeline of deals and consequent growth. It is when you look at the rest of the continent, South African banks are really standing up to the plate and asking: ‘Where is growth coming from?’ It is on the cross -order deals that lie outside South Africa.
Meyer: Yes, but I think also there are partnerships being made by some of the South African banks that do not have a network in other markets in Africa, so that local presence is becoming a key issue now. That is where those banks that do have a local presence are still ahead of the banks that do not. They need to form partnerships and rely on that local knowledge.
Woolley: Yes, a local presence allows us to have a better scope about the market, whether we are dealing with foreign currency or local currency, depending on what the client’s requirements are. We can also be a co-ordinator of African involvement in transactions that are purely African. Our costs of funding in the past, I think clearly for most South African banks, was a challenge, and indeed for Nigerian banks; but in dollars after the euro crisis we can be reasonably competitive on that side. It allows us to take that more dominant position.
Clavel: It also allows South African banks to take some of the slack left by banks struggling with the Basel III requirement. But in the overall scheme of things, is there more or less money available to the sector, or is it simply a replacement of deserting European banks by South African banks?
Woolley: I would say there is more liquidity. The French banks have not all run for the hills. They are being more focused about what they are doing. If you add up all that appetite, and, indeed, then other regional banks such as Ecobank, that have that big geographical reach, I do think there is more depth of liquidity.
Mitman: It is good to see local and regional banks playing more of a role because they do bring value to the clients and to the market. Instead of having fly-in, fly-out bankers, having a local bank is a good thing for the market and for the clients, generally.
Are international banks ready to consider deals that may not necessarily have an existing client relationship cornerstone anchoring the deal?
Cutler: From an insurance point of view, last year a lot of the international banks were very much repeat business with the same people and a lot of those transactions were on the African continent. This year, there is more liquidity. At IP Week, people mentioned they are actually getting financing that had not received before. They had a good experience trading, buying and selling on the continent, say, two years ago and people are coming back.
With regard to Anne-Marie’s comment about how the French banks have not all disappeared, I would say they certainly have not disappeared. The Basel element makes a difference, but some of the second-tier European banks, like the Swiss cantonal banks, are now providing financing, so they are doing club deals on transactions with traders, particularly for major commodities. On the existing client relationship, there are two camps; there is the very conservative: ‘I’ll only deal with x, y and z,’ and then there is the broader: ‘You know what you are doing; we’ll work with you.’
Afzal: Coming from a banking background with banks like JP Morgan Chase, ABN Amro, Crédit Agricole, I seem to have spent lifetimes over there; this was just the way business was done. In the ‘olden’ days, if there was not a major relationship or client of the likes of a Total, Exxon, BP, Shell or a Glencore or Vitol, the bank would not do those deals. Now you look at Africa with deals like Sonangol being oversubscribed. I remember the days when raising US$100mn for Sonangol was a big issue. People have very short memories, especially bankers.
Those transactions may get oversubscribed but the bulk of the trade that is going to happen in Africa is not going to be with the Sonangols of the world; the real business will be done – and we are sitting in South Africa – with the SMEs and the likes of black economic empowerment (BEE) companies, and that is an initiative that the South African government is trying to put forward. These BEE companies are now talking to us, because I now represent a much smaller group other than a large international bank which is predominantly focused on promoting and facilitating pan-African trade, and I am seeing a lot of frustration on the ground. These are companies that are mandated to, for example, handle at least 25% of the import of oil in this country, and fronting is now not being allowed, so the nameplate is not going to work; the big, established trading companies are not going to be doing all the business behind these nameplate names. Who is going to finance these SME and BEE companies? Where are the international banks?
Everybody says: ‘Yes, Africa is important for us. We are in Africa,’ and they all cite numbers which are driven by Sonangol and Cocobod type of deals, because those are big numbers and they stand out on their balance sheets. But those banks are not committed to Africa. I am sorry to say but the South African banks, from the little research that I have done and having spoken to these kinds of companies, have a monopoly situation here. The banks over here are making more money than trading companies, which is unheard of in the rest of the world. So, banks (both, South African and international) need to wake up because these companies are going to do business and capital is going to find a way to them. It will take a lot of effort and some time to do it, but the process is speeding up and this should be a knock on all the locally present banks’ doors that business-as-usual is not going to continue.
Mokgehle: Maybe the answer to the question is a bit of a yes and no; on the ‘no’ side, there could be a few factors. Are you looking for a new market? Have you got new products that you want to offer? Often you would not necessarily follow an existing relationship because there are compelling reasons why you would need to be in a particular place that you have never been.
But on the other side, on the ‘yes’ side, for example, this year we recently did two deals; one in the Republic of Congo and the other in Morocco. These were new markets for our commodity finance team and we took much comfort from clients we concluded the deals with, whom we have been with elsewhere and who know those markets well.
Mitman: In a syndicated US Exim deal for some jet aircraft last year, we went out to local and international banks. There were a fair number of names there with whom customer relationship was the core strategic rationale for them responding to the RFP. As we see banks deleveraging, that is being used as one of the key criteria for what they stay in and what they get out of. I do not necessarily agree with the rationale – that is another debate – but it is there, for better or worse.
Clavel: I very much agree with what you said, Irfan. We deal essentially with the SMEs and therefore our focus is very different from the big, sexy deals that we read in the newspaper and the sole focus is on the control of the commodity. That is our security, it is not the balance-sheet; it is making sure it is well looked after and that it is going from where it is supposed to, to where it is supposed to end up.
Going forward, the massive change in the pattern of the people who are doing business in Africa is phenomenal and all these new entrepreneurs have a massive need for funding, which is only partly met by the local banks. What I find across the continent, Nigeria being probably an exception to that because it has a massive economy, is that a lot of the African banks, whether they are second-tier or third-tier, have had less of a credit line than they used to. So we say: ‘Yes, maybe BNP has not really dropped this business,’ but it has also curtailed the lines of confirmation they used to give to African banks. There is a knock-on effect that needs to be met by people who can deliver US$2mn to US$4mn funding, which a big organisation cannot.
Meyer: What is encouraging is that I worked on a transaction with Nedbank last year, where the bank actually looked at the value of the entire commodity value chain and said: ‘Well, there is an intrinsic value in what is being created, produced and sold.’ With the name, if you read the deal memo, you would think it is a bunch of farmers out there in the countryside, but it was a sizeable transaction. Some institutions get that. I would agree with Sekete: it is a bit of yes and a bit of no.
Afzal: My bugbear is that for oil transactions – we are talking about these BEE companies, we are talking about big money. We are not talking US$2 to US$3mn; these are not chicken farms; these are not onion producers. We are talking about US$100mn-plus requirements, which cannot be filled by just small banks or second-tier banks. The big international banks would prefer going into, for example, a Sonangol deal at a margin of 1% or 2% and fee because they have a client relationship-driven angle and it helps them in their league table ratings etc, rather than financing oil, which is still part of their main business, which will yield them 7% or 8% which these SME and BEE companies are willing to pay. But because there is no financing available, this business is not being encouraged.
Meyer: I did a transaction last year which was exactly the type of transaction that you are talking about. The main concern was funding and the BEE with the new petroleum code obviously has to import, sell and distribute the fuel. The institution that funded the transaction was a big national bank, which was one of the ones that you have mentioned before. They did not have a hard offtake from the major, they had to take a view that the major was so dependent on the delivery that they could not afford to have the BEE company slip. The potential risk that this could be construed as fronting was mitigated in that way, but there was not hard security.
Muza: If you look at our perspective from Zimbabwe, some of you many have listened to the Exporta panel conference in the morning where FBN Bank spoke about how they are coming into Zimbabwe and carefully picking up the opportunities. They do not have existing relationships. Yes, they may work with Afreximbank in Zimbabwe. Yes, there are banks that are still brave enough to walk into a marketplace that they have not operated in before and do transactions, but the key issue is that there are questions about who they deal with.
Woolley: You need to remember that some of these regional banks as well – a bit like Afreximbank and the Eastern and Southern African Trade and Development Bank (PTA) – are acting a bit more like multilaterals. One of the challenges that we have as an institution sometimes is that they call themselves a development bank but they clearly operate in a commercial space and act as direct competition. I am a bit old-fashioned, maybe, but I think a development bank should be filling the gap that the commercial banks do not participate in. But that is an aside, because it is useful liquidity to the market that is required.
Muza: This is especially the case in Zimbabwe because they are the only two players in that space.
Woolley: Yes, exactly, in Zimbabwe they play the role that, in my mind, the development banks’ raison d’être is to fill a funding gap. But when you go to other countries like Zambia, Malawi or Mozambique, and sometimes even in places in Nigeria, you wonder what the role of an eximbank bank is when there is such a deep capacity.
Nevertheless, this is part of why we are saying that African banks are filling a gap left by many people, overall, and regional banks do have a role to play. That said, I think that there comes a scale issue and one of the things that the international community is concerned about is the cost of regulation. That is not necessarily just Basel III but the know your customer (KYC) side. If you do not have a decent volume of business with, for example, another bank of Kenya, if you cannot get decent flow, then these banks cannot justify the cost of the investment of those suitcase bankers going into the market. There is therefore a consolidation issue.
By contrast, I think Nigeria has almost the opposite problem in that you have so much demand, which the international community cannot cope with. If they moved everything onto letter of credit (LC) terms in Nigeria, which was tried on the oil import side, the corresponding banking market could not cope with the increased capacity requirement.
Meyer: From a regulatory perspective, what I am finding extremely difficult at the moment is that because the African regional banks and the DFIs want to participate in the major syndications, you want to create bespoke solutions for your transaction but you also want to achieve standardisation on your documentation, and on the regulatory side of it, FATCA is a very good example of the uncertainty out there.
Muza: I just want to bring the Zimbabwe perspective onto the table again. I think you appreciate what the country has been going through in terms of sanctions and its inability to access international capital. From that perspective, the partial withdrawal of international banks will not be felt because they were never there in the first place. When I say this, I mean in terms of lines of credit. Yes, you have your Standard Chartereds, but the capacity that they have been providing has almost been in some cases less than what the local banks have been providing.
You will find that the likes of PTA Bank and Afreximbank have actually been the cornerstone lenders to the market. What may filter through to the Zimbabwean market is the issue of cost of financing, due to the fact that they also raise their money in the primary markets. Otherwise, in terms of feeling the withdrawal of international banks, there is nothing to feel, essentially.
Lately, you have seen the African Development Bank (AfDB) providing a US$200mn facility to Ecobank, and you also have PTA Bank going into the syndicated lending market and raising about US$150mn, which was oversubscribed. Because those institutions have operations in Zimbabwe, I would imagine that that would probably have an effect on increasing availability of finance to Zimbabwe and perhaps on the cost as well.
Woolley: I am not sure that there is that correlation. I think that banks that lend to those two institutions take a portfolio view; while they recognise that some of that is going to be diverted to Zimbabwe, they will take a view that the counterparty they are lending to is not a Zimbabwean entity. Therefore, while they recognise that indirectly they are taking a Zimbabwe risk, they do not do it on the basis that they are actually encouraging the bank to take some risks there.
Uzoebo: I think in the regional parts, this is where Africa, as a whole, has failed in terms of regional trade. If you look at groups like SADC, Comesa, ECOWAS etc, you have all the treaties: free movements of trade. Take for example ECOWAS, you have two monetary unions: the Anglo and Francophone side of it. Taking goods from one border to another depends on a lot of variables.
If you go to a market in Lagos, and buy pineapples, you will see that the guy imported fresh pineapples from England, but on the label it says produced in Ghana. Why did he not just move this across the regions?
At the end of the day the regional banks are still not able to support trade in their regions which has given the international banks a lot of opportunities to finance trade in the continent with the role of the local banks being that of a guarantor for these transactions.
We are seeing a lot of Nigerian banks expanding into various African countries. Due to these expansions, several regulatory bodies have raised the capital requirement which is now enabling better regional and international trade. This has also strengthened the local banks in taking up more mandates in uplifting the real sector of the economy. We hope to see a breakdown in the barriers that have restricted regional trade as governments and the private sector continue to work together.
Cutler: Tony, you are based in London, Sekete has got a team in London, and you have the link up with Ecobank, and, obviously, Standard Bank. The point is you are using both areas to build up strength and do more business because a lot of the local, smaller banks cannot work for all the reasons you said; some of it is about expertise, it is not just about liquidity. That is improving; we are seeing more deal flow.
The insurance market five years ago, African banks, other than South African banks, were always seen as a risk, now they are becoming buyers of cover; that is helping liquidity. It is an important thing to remember. There are so many transactions to do, and quite a lot of them are below US$100mn in virtually all territories. It is actually possible to do it, but it is just down to the KYC, which slows things, but in some ways is better.
Mokgehle: For many years to come we still need international banks within the regional space both from a risk appetite and liquidity perspective, because there is just so much in Sub-Saharan Africa to finance; to do so from only the regional banks’ capacity will not be possible.
Muza: While I agree with Sekete, I think there is an issue which is gaining currency within African markets which deserves attention. Central banks in Africa have gathered significant reserves over the past 10 or so years. It is believed that in 2011 African reserves stood at US$461bn; and most African central banks will basically send that money to America or Europe to be managed there.
But they are getting almost nothing for it – compared to the pre-crisis period when they were getting yields of 2% to 3%, now they get something like 0.2%. Why does that money not get invested in African markets where better yields can be achieved while meeting infrastructural needs? Yes, there is the issue of credit risk – because in addition to chasing yield, these banks are also chasing safety or the certainty of getting their money back when they need it.
We have an AAA-rated bank in the form of the AfDB; countries should get credit ratings and the AfDB can come in as a guarantor, so that money may be more useful in Africa. If you take just 5% from each of the central banks, you will have something in excess of US$25bn. Yes, international banks will be needed for some time, but I believe we could do more in Africa to get our act together, and get our own money working for us because it is getting almost nothing in Europe.
Mitman: Moving onto the Chinese then, are they becoming a greater competitor, or assisting in plugging gaps?
Mokgehle: Maybe the answer is ‘not yet’, because a lot of Chinese banks, as much as they have shown a footprint on the continent, are really still following relationships. On certain big strategic assets, yes, they would come to the party, but in terms of plugging the gaps, I do not think that they are competition yet.
Mitman: Is it mostly in infrastructure?
Afzal: In the London market you do see the Chinese banks in syndicated or club facilities; one quick way of entering structured trade business is to buy your way in, and the Chinese banks are doing that. They may not yet be in Africa on the ground, but through the European syndicated market, we do see Chinese banks coming into the transactions that involve no relationship or Chinese angle, for yield and purely for getting their name in the market. Then, over time, if they have ambitions to build trade and structured trade as part of their core business, they are building up that expertise internally, and that is the way you enter the structured trade business.
Woolley: I would certainly say that in London, Chinese banks have very active trade finance desks.
Clavel: They are conservative, though.
Woolley: I would not say that that is necessarily the case. We have certainly seen them in some transactions for Africa deals where there is not necessarily a Chinese angle. It is quite disparate, though; one bank will tell you that that is not their model, and therefore they cannot do that or that that particular country is off the radar for them. Then another bank comes along. It is partly down to the fact that each bank has a different philosophy, but again, you look at China Development Bank, China Construction Bank, Bank of China and ICBC, they are all playing slightly different fields but, in aggregate, they are filling a gap.
There was a sense at one time that they might actually be creating a different market by granting much longer tenors than the rest of the commercial market was comfortable with. I think that has come back as well since then. So they were the first ones that started lending Sonangol 10-year money, so the following year the international syndication did one for 10 years, but it subsequently came back to five years again. I think that almost certainly there are these outliers. In primary essence they are financing deals that they want to, either in infrastructure or in areas where they trying to secure natural resources.
Mokgehle: I was going to make the same point, but asking a question more than making a comment; one sees them in high-profile transactions, and the question then is: ‘If they were to completely pull out of the market, or not lend a cent, could available capacity be able to sustain the funding on the continent?’ My guess is that the answer is: ‘Yes.’ They are playing a role. Perhaps they are looking for a new market but they are not necessarily a critical component.
Woolley: I think a lot of this is under the table, Sekete; I do not think we truly know the scale of their books. And so,
I think, each one of us can probably think of one or two transactions we know that they are in, but I think there will be lots that we do not know about. In the same way that you and I will be doing bilateral deals with clients, as will Zenith I think, there are also going to be other transactions that the Chinese are doing and I think we underestimate how much they are doing, certainly.
We have a 20% shareholder that is Chinese and certainly we know that they are doing transactions that we are not party with and vice versa; we will do transactions that we do not ask them to join but equally they do join with us. I would not like to overestimate what they are doing. But I do think it is growing in scale.
Afzal: It is. You begin to look at the hiring that has happened and the teams that have been built; it is mainly the Chinese banks that have been growing their teams. The information in terms of lending is not readily available, because you do not have published syndicated deals anymore. More deals are being done on a club basis. If everyone around the table knows two or three deals, you can just add that up and the Chinese are in all of them.
Mitman: So are they competitors or they are plugging gaps or both?
Afzal: As some of the more established European players have become more selective and are being more conservative in picking and choosing the deals they go into, at the moment I see the Chinese banks as plugging the gaps. As to being a competitor, it does take time to become a competitor as a deal originator in the MLA space.
Mitman: So it is just technology at the moment.
Afzal: Yes, and skillset. Policy, strategy, and commercial or credit decision-making needs to be fully migrated to London rather than it being done in consultation with head office, and this is an evolutionary process. They will be competitors in five years’ time.
Mitman: So, talking of French banks, what are the suitcase bankers looking for in international deals?
Woolley: I think they are very focused by sector; I think they are very focused on the clients and they want scale. I do not think they are so interested in building a series of bilaterals. I think they specifically target the large flows and where they can intermediate. So in a country like Mauritania, you saw Société Générale do the deal with the IFC for US$400mn. But I think that was definitely on the back of the supplier to the Mauritanians rather than the Mauritanians themselves. They are looking for scale, which gives them the right return and therefore the right economics to make it worthwhile for all the regulation. We still come back to the fact that Basel III will impose huge constraints on institutions.
Mokgehle: Together, Nedbank and Ecobank have the largest footprint on the African continent with representation in 35 African countries. This developing relationship helps us look at the risks associated with ‘non-presence’ differently. However, we are looking for new, non saturated markets that will give us geographic diversification, and therefore you’re not on the ground, but you want to establish a long-term presence. The best way to test waters is often through suitcase banking. Then again, what do you look for in those deals? You look for well-mitigated deals, where your presence on the ground may not necessarily be a key issue, and you are looking to do it with partners who have been around and who know the ropes in those jurisdictions.
Mitman: Moving on to commodity finance, what is the impact of falling commodity prices on the ability to raise finance in the absence of hedging cover in the majority of deals?
Afzal: This is a structuring question that we have looked at before as well, for example when we started financing Russia 15 years ago. When you are dealing with statal or parastatal entities, you take the commodity as an ‘infinite’ amount. You always have built-in top up clauses, in case the price goes down and you have to increase the volume of the underlying commodity which is being financed. That has worked in the past. I think banks and credit committees have taken a lot of comfort from those deals having successfully panned out. They have been tested in downturn economic situations. Russia again a prime example; in 1997, the country defaulted on its MinFin bonds, but none of the structured pre export finance deals ever got into trouble. They all repaid. Yes, tenors had to be stretched, quantities had to be increased, but without hedging they were still able to maintain their security cover and the coverage ratios were maintained.
Mitman: As long as there are enough reserves there, it is fine.
Afzal: I think so, and therefore banks take a very robust view in the structuring; they do ask for the total borrowing of the entity, they look at the reserves very carefully, and of course the basics; you have got to get your structure right, and if you do that right, then hedging is not a critical component. Obviously, banks would like to see hedging; they make more money on it, but again, dealing with government and governmental entities, they will not accept increased cost by having a hedge embedded.
Woolley: I think you need to look at this in two ways, depending on whether you are talking about export finance or import finance; obviously, export finance, particularly when it is term, then hedging may actually be very expensive for clients. It is never a panacea for all ills, because margin calls can cause a company to collapse because it runs out of cash, not because it is not profitable.
On the import side, very often it is much shorter term, and one of the discussions I quite often have with credit is around the right reference point. Because the world price is almost the price on the high seas, but once it has landed and been put in a storage facility and you have taken into account the cost of that freight, the cost of landing and paying import duties, the cost of storing it, how relevant is the world price to that? How often are you likely to ever re export that commodity, again? Unless someone is buying a whole 12 months’ worth of the complete demand of the rice market in Nigeria in one hit, why would you need to reference it to the world price?
Equally, I think there are plenty of commodities that are being financed that are non-hedgeable, and if I reference the ETG deal that we led last year, a lot of those commodities do not have a terminal market in which to have a reference price. So you have to take a certain view on the expertise of the matter to manage that price risk. So while you do not necessarily rely on the balance sheet of that entity; that is why you look to the underlying commodity, you perhaps have to look as well to a degree, partly to the balance sheet, but also the ability of those people running that business to have managed and demonstrated a track record over time. They have been very successful about not having huge losses because of price risk; it depends on the cash conversion cycle. Those things can all make a difference of whether or not hedging actually is required for some of these deals.
Mitman: Are local regional banks playing a meaningful role in the export credit market?
Woolley: I think that is a difficult one because I think there is a lack of understanding. Certainly, I have now worked for three international banks, which all have local presence in Africa. Both your colleagues in those banks, as well as their clients, when it comes to any kind of ECA, however large or small, would far rather leave it to the supplier. Show me that you can supply those goods and you can show me a finance package to go with it. It is still very much in the hands of the larger multinational banks, the HSBCs, the Barclays, the Standard Chartereds, the JP Morgans, the Citis, that are still driving that, with those large suppliers, with your Siemens, your Airbuses. They are the ones who drive most of the ECA business.
I have spent a long time with clients and with colleagues in countries in these local banks trying to explain to them the benefits of actually taking ownership and there becoming buyer credits rather than supplier credits, but with little success. Local banks let the international banks lead those directions and negotiations.
Mitman: I think that is right. They are trying, though. I think that the financial crisis has really helped level the playing field; local banks did not generally do export finance because they were rated lower and did not have the funding costs. Now their foreign counterparts are suffering realistic funding costs that we have been living with for a long time. ECAs themselves are also introducing products which allow the local banks to work with them, such as securitisation guarantees and direct loan products.
So, we are seeing, certainly in South Africa, all the banks pushing to get more involved and not just the top ups anymore. But it is a process. Most of it is export credits out of South Africa into the continent, and a lot of it is project finance-related. But we are beginning to see more foreign deals: Nedbank led a deal with Transnet last year for locomotives. We did the deal with Comair. Small but significant steps are being taken and I think it is good to see.
Woolley: The question is whether South African banks are local. I am allowed to say that; I work for a South African bank. When you talk about local and regional banks, I would talk more about some of the Nigerian banks, some of the Ecobanks, the Kenyan commercial bank: those are the ones I was referring to about the natural reluctance. I do think our South African colleagues, our banking fraternity, is stepping up to the plate, but in Nigeria, at Zenith, have you got a team that is specifically focused on ECA finance?
Clavel: Buyers credit was very popular in the 1970s and 1980s, but then it went away. But I think that suppliers go after suppliers finance and the ECAs are not there to market their product. I cannot imagine Coface going to Nigeria and going to see Zenith banks to say, ‘We would like to give you a US$200mn credit line.’ It has to be the other way around: they are government entities, therefore they are reactive. They have to be proactive. The other thing is that ECAs were popular because they provided credit at subsidised interest rates, but with Libor at near zero, level of interest rates from ECs is no longer a selling point.
Mitman: There has to be local regulatory recognition of cover for capital and other purposes as well. I think banks are realising that this allows them to do bigger deals for longer terms and in other currencies that they would not otherwise be able to do. It is a form of risk distribution and alternative funding for them.