Export Development Canada (EDC) has announced its mid-year financial results, noting that its total business volume in the first half of 2006 reached C$28.7bn, a significant 10% increase over 2005.
“We have leveraged our strong balance sheet to undertake more business during a very challenging economic period, when Canadian exporters and investors need us the most” says Eric Siegel, chief operating officer of EDC. “The robust growth we have seen in small business transactions and in emerging markets is a direct result of our increased willingness to take on more risk.”
In the first half of 2006, EDC facilitated C$7.6bn in trade with developing markets, a 19% increase over the same period last year. More than 5,870 customers used EDC’s products or services to grow their export business through June 30, 2006, a 3% increase from 2005. Business volume among small business increased by 39% to C$9.5bn. EDC applied its products and services in 170 countries in the first half of 2006.
Across Canada, exporters and investors in Western Canada accounted for C$10.1bn of EDC’s total business volume (up by 13.5%), followed by Ontario at C$9.4bn (up by 16%), Quebec at C$7.7bn (up by 7%) and Atlantic Canada at C$658mn (down by 4%).
“Our increase in business volume suggests that Canadian exporters are finding ways to compete despite the moderating global economy, but that slowdown requires that we set aside more of our income to offset the associated risk,” continues Siegel.
For the first six months of 2006 EDC’s operating income was C$523mn (C$417mn for the same period in 2005). The increase includes C$261mn in debt relief, which reimbursed EDC for sovereign debts to highly indebted nations forgiven by the government of Canada. Excluding debt relief, operating income actually declined by 33% from the same period in 2005 as a result of higher funding costs, the strengthening of the Canadian dollar and a reduction in loan income owing to impairments in the aerospace portfolio.
Interest income is not recognized on these loans while they are impaired. This impact is expected to be temporary, as EDC expects them to return to performing status within the next year.
Net income for the first half of 2006 was C$305mn compared to C$761mn for the same period in 2005. This change reflects increased provision requirements as well as an unrealized fair value adjustment loss. Increased business volume in 2006 resulted in a provision charge of C$34mn. In 2005, there was a release of provisions totaling C$247mn as a result of a reduction in loan assets, improved credit conditions and the purchase of risk mitigation insurance.
The unrealised fair value adjustment for the first six months of 2006 was a loss of C$184mn compared to a gain of C$97mn for the same period in 2005. The impact of the unrealised fair value adjustment upon EDC’s net income is a result of the implementation of Accounting Guideline 13, which was a new accounting standard introduced in 2004 under Canadian Generally Accepted Accounting Principles.
The guideline requires an unrealised fair value adjustment to be recorded on the income statement, representing the change in the fair value of derivative financial instruments that have not yet matured.
Administrative expenses for the first six months of 2006 increased by 12% to C$97mn from C$87mn for the same period in 2005 mainly due to an increase in pension costs, as well as one-time costs for internal restructuring.
Non-interest related expenses as a percentage of net revenue were 28.4% compared to 20.2% for the first six months of 2005.
The total allowance for loan-related losses and insurance claims at June 30, 2006 was C$2.7bn. Total paid-in capital, retained earnings, and allowances at June 30, 2006 were C$7.8bn. Impaired loans as a percentage of gross loans receivable increased to 14.5% at June 30, 2006, compared to 9.9% a year ago reflecting additional impairment that occurred in the last half of 2005 primarily in the aerospace portfolio.
And the number of insurance claims paid was 669, a 7% decrease from the first six months of 2005. The dollar value of those claims was C$27mn compared to C$23mn for the same period in 2005.