South Korea’s export credit agency (ECA) and Deutsche Bank have announced a revolving credit facility aimed at improving liquidity for apparel exporters. The deal marks a “supply chain market” first for the ECA, Deutsche Bank says.

Under the arrangement, the Export-Import Bank of Korea (Kexim) will purchase the account receivables of South Korean suppliers to fashion giant Gap from Deutsche Bank, Gap’s main trade finance bank, up to a total limit of US$30mn.

Deutsche Bank says the deal “will greatly benefit Korea’s apparel industry suppliers by supporting financing liquidity and reducing their cost of financing”.

The purchases by Kexim will also reduce Deutsche Bank’s exposure and allow it to provide further liquidity to the Korean apparel export sector.

The two organisations say the financing process is paperless, with Gap and its suppliers plugging into Deutsche Bank’s digital trade documentation system.

David Lynne, the German lender’s head of corporate bank and fixed income and currencies, says the “groundbreaking solution” is a “first of its kind for an export credit agency” and a “prime example of how we can support buyers with a more diversified pool of suppliers and help suppliers optimise their cash flows”.

The director-general of Kexim’s trade finance department, Lee Jae-hong, says “efficient financial supply chains are crucial to the strength of the Korean export sector”.

“We are keen to play a constructive role in supporting Korean exporters directly and indirectly in the financial supply chain and will increasingly explore opportunities to do so.”

Kexim says it plans to continue purchasing invoices from the country’s small and medium enterprises, which it says are struggling due to the coronavirus pandemic, and to reduce the amount those businesses pay for early payment of invoices.

The pandemic has heightened pressure on global supply chains, with bottlenecks and shipping costs ballooning. Research released earlier in July found that US$507bn of liquidity was trapped within supply chains of 1,500 companies in the S&P Composite 1500 Index as at the end of last year – the highest level in a decade.