British exporters have again urged UK Export Finance (UKEF) to soften its pricing, warning that companies are considering moving their business elsewhere or are missing out on trade opportunities.
Despite criticism in 2021 that premiums charged by the agency were outstripping those of their European rivals, there has been “little progress” on reducing costs, according to a benchmarking review published today by the British Exporters Association (BExA).
In some cases, UKEF’s pricing “is in excess of market rates by so much that exporters have utilised other ECAs [export credit agencies]”, it says.
Smaller businesses that are unable to look elsewhere are forced to take on the risk of a transaction themselves or avoid bidding on potential export opportunities.
“In one particular stand-out case, the premium paid to the ECA, including the resulting export financing transactions, was in excess of €100mn,” BExA’s report says.
“This exporter is now actively considering moving its business away from the UK – meaning that potentially billions of pounds of exports may be lost to the UK.”
From 2010 to 2021, UKEF has brought in around £10 in premiums for every £1 it has paid out in claims – more than five times the equivalent figure for ECAs in Germany, the Netherlands, Spain and Sweden.
“As such UKEF continues to operate as an outlier to its peers who operate to the OECD guidelines of slightly better than break-even,” it says.
The ECA is also running well above objectives set by the UK government around premium-to-risk ratios.
Rather than continue to run with “excess profitability”, BExA says the agency should deepen the amount of risk it takes, using its historical surplus to absorb any potential increase in claims.
The association also recommends that pricing is based on the particulars of a deal rather than on generic country-based models, and that best pricing should be applied “first and every time”.
Premiums should be clarified in a timely manner, it adds, saying: “Anecdotally, we have received reports from members who have incurred significant delays on receiving indicative pricing from UKEF.”
When contacted by GTR, a spokesperson for the agency says: “UKEF aims to be competitively priced and ensures we operate at no net cost to the tax payer.”
The report also suggests that improvements are needed in other areas, particularly as UKEF seeks to attract a growing number of enquiries from potential exporters.
“BExA already receives feedback on what are perceived to be unduly burdensome requirements for even straightforward enquiries to be referred to senior decision-makers, and that delays in responses are undermining SMEs’ ability to export competitively,” it says.
In terms of products, the agency has yet to provide concessional lending despite being urged to do so in the 2021 benchmarking report, and should work with the private market to make it easier for SMEs to obtain foreign exchange risk cover.
However, the report says UKEF is excelling in terms of its overall product offering. It awards UKEF a 9/10 score for continuing to introduce “new and game-changing products”, and an additional 9/10 for “usability”.
It says criticisms of UKEF’s ability to manage certain offerings could be a result of rapid growth and evolution, suggesting the agency “has perhaps been a victim of its own success”.
“UKEF is rightly proud of its broad product range and the support it provides to UK exporters,” says BExA vice-president and report co-author Marcus Dolman.
“Similarly, we are pleased to work with UKEF to ensure that the broad portfolio of products they offer works in the best possible way for our members and the whole UK export community.”
UKEF chief executive Tim Reid says the agency is “delighted” with the scores awarded by BExA, adding: “We are pleased that BExA have recognised our support for businesses to help them export to challenging international markets, and the valuable role of our products in complementing the UK’s ambitious trade agenda.”
“We understand the challenges facing UK businesses today, with rising costs, supply chain issues, and a turbulent global economic market,” he adds. “We will continue to engage with BExA, industry, and our customers to ensure UKEF’s support and the usability of our products meets the needs of the UK’s exporting community.”
The report comes as UKEF announces it has been granted an additional £10bn of capacity, raising its exposure limit to £60bn.