Export credit agencies (ECAs) across Europe are upping their support for businesses grappling with the Covid-19 crisis, including increased risk cover in Poland and a lifeline to Norway’s squeezed airline industry.
The rapid spread of coronavirus has already had a profound effect on global shipping and finance lines, prompting concerns of a major hit to global GDP and a prolonged slowdown in international trade. Several ECAs are responding by unveiling drastic new measures aimed at ensuring businesses still have access to finance and so can continue exporting goods.
Polish agency Kuke announced last week that following a “slowdown” in international trade, it would take on 100% of “both commercial and political risk from exporters and banks financing or refinancing export transactions”, with immediate effect.
The policy will apply to all new export projects with repayment terms of two years or more, and will last at least until the end of 2020.
“The main reason behind introducing the new policy is to encourage banks to continue to support and finance export projects,” it says. “Kuke will take on the entire transactional risk, thanks to which banks will not have to create reserves against the potential risk of default by a foreign buyer subject to the contract.”
Kuke’s portfolio mainly consists of construction, machinery, transport and shipmaking projects. The agency says it usually covers around 90 to 95% of a contract value.
It adds: “In order to successfully acquire new export contracts in these sectors of industry it is crucial to secure adequate bank financing. This will be increasingly difficult in the unstable and volatile global economic environment.”
In Norway, meanwhile, credit agency Giek has launched a US$522mn guarantee scheme to cover loans to airlines licensed in the country. It says the airline sector “is in a critical state” following a sharp drop in air traffic, caused by travel restrictions aimed at limiting the spread of Covid-19.
“The airlines are an important part of Norway’s infrastructure,” it says in a note issued on March 24. “The new scheme will enable airlines to obtain loans in the commercial bank market, backed by AAA-rated state guarantees.”
Giek says it is ready to issue guarantees as soon as the new scheme is put in place by the government, which is itself subject to the approval of European Free Trade Area supervisory authorities.
Chief executive Wenche Nistad adds: “Giek has extensive experience in handling financial risk and representing the Norwegian state in complex financial transactions together with commercial banks and other parties.”
There have been wider calls within the airlines industry for state-led support. Airbus chief executive Guillaume Faury issued a video statement this week saying the company is “advocating support of governments for the complete ecosystem across the industry, for our suppliers and customers”.
Specifically citing the provision of export credit as an example, Faury adds: “For our generation these are unprecedented times. This crisis will see our industry undergo deep changes in the months ahead.”
Denmark’s EKF has also launched new initiatives. It says domestic exporters facing “immense pressure” due to the crisis can benefit from operating loans of up to DKr1.25bn (US$180mn) provided by the country’s banking sector, with insurance cover for export orders totalling “a similar amount”.
“Effective assistance will be offered by EKF in the form of liquidity guarantees and reinsurance of private trade credit insurance companies,” says chief executive Kirstine Damkjær. “In the current situation, these two initiatives could help a large number of exporters. I would urge all Danish exporters in need to contact us so we can jointly find a viable way forward.”
Spain – where the outbreak of Covid-19 has been particularly rapid – has responded with broader measures. Export credit agency Cesce is providing a new revolving credit line for small-to-medium-sized enterprises of up to €2bn, in two tranches of €1bn each. Though the funds are aimed at exporting companies, they do not have to be used directly for facilitating export activities.
Similarly, in France, export credit agency Bpifrance is collaborating with the banking sector to offer “state guaranteed loans” worth a total of €300bn, available to companies with fewer than 5,000 employees.
In Britain, UK Export Finance has yet to set out any new measures, but says its export working capital and insurance schemes can ease cashflow restraints for businesses experiencing problems around delayed or disrupted payments.
Germany’s Euler Hermes says it will soon provide additional information on its latest proposed measures. According to Alexander Malaket, president of Toronto-based trade consultancy firm Opus Advisory Services, the extent to which ECAs can respond to the crisis depends on several factors.
He tells GTR there is not yet “a systemic liquidity problem, or an issue with risk appetite or credit capacity as relates to trade financing”, but additional measures like those in Poland “might become critical if the situation develops”.
“The degree of uptake will also depend on the character of individual ECAs – that is, whether they are fully public sector entities that can provide 100% cover as a matter of public policy, and on the national credit card,” Malaket adds. “ECAs that are hybrid, or commercially driven, are less likely to follow suit.”