Ukraine’s export credit agency (ECA) is seeking help from its global counterparts as it tries to accelerate coverage of financing for Ukrainian exporters battered by Russia’s invasion.
The war erupted in February as the fledgling agency was still finding its feet. The Ukrainian government enacted legislation to establish an ECA in 2018, and operations did not commence until 2020. The following year the agency covered a modest Hrn12.5mn (US$340,000) in financing for local exporters, according to its website.
The invasion also threw the country’s export industries into disarray, with almost half reporting in June this year that their businesses had completely or almost ceased production, according to research presented by the ECA to the Berne Union.
ECAs in Europe and beyond suspended coverage of trade with Ukraine despite otherwise staunch backing for the country, with some citing the Ukrainian central bank’s ban on overseas payments for their decision.
“Many ECAs closed insurance limits for contracts with Ukrainian counterparties,” the Ukrainian ECA’s acting deputy chairman Ruslan Hashev tells GTR. “It practically blocked Ukrainian companies’ access to the import of technologies, equipment and components.
“After all, in wartime, Ukrainian business has problems with attracting additional funds, and cannot afford to work on an advance payment basis,” Hashev says.
While some ECAs, such as those of Canada, the UK and US, made a point of retaining their coverage and credit limits for exports to Ukraine, the ECA is seeking more direct support for Ukrainian exporters and help in its own efforts to provide low-cost financing to the sector.
In a webinar hosted in early September by the Berne Union, a global association of ECAs and trade credit insurers, the Kyiv-based agency implored the more than 100 ECA representatives present to return to their pre-war coverage limits for Ukrainian counterparties and consider financing imports of Ukrainian-origin goods.
The agency also said ECAs should restore guarantee limits for Ukrainian exporters and improve the country’s risk rating under OECD country risk classification, which ECAs use to determine minimum premiums. Ukraine is currently rated 6, the second-highest risk category.
Ukraine is also hoping to reach agreements with other ECAs on reinsuring its risks, which Hashev says ”will significantly strengthen support for Ukrainian exporters”.
In a statement to GTR, the Berne Union’s acting secretary general Paul Heaney said of the webinar: “ECAs noted that they are striving to continue supporting their exporters to do business there on a case-by-case basis and many are actively exploring opportunities for targeted co-operation around reconstruction in areas such as risk sharing and reinsurance.”
In April, the ECAs of Canada, the UK and US said they “will continue to support Ukraine and ensure that exports from our home countries can continue to flow” and encouraged other countries to do the same.
Reta Jo Lewis, the president of the US Export-Import Bank, told a visiting Ukrainian government delegation in Washington in August: “Russia’s actions will not deter Exim from financing projects in Ukraine… we will work to provide sustainable financing solutions that strengthen Ukraine’s infrastructure and prosperity.” US Exim did not respond to a request for comment.
The UK government decided in April to maintain UK Export Finance’s (UKEF) £3.5bn risk capacity for Ukraine transactions, which had been increased in December 2021.
No new business has yet been underwritten under the revised limit, according to UKEF’s most recent accounts, but the coverage is intended for priority infrastructure and defence projects that are yet to be finalised.
ECA to expand coverage
The Ukrainian ECA has managed to maintain its own support for exporters throughout the war, which has worsened in recent days as Russia aimed a barrage of cruise missiles at Kyiv and over cities. Hashev says the organisation “did not face significant operational risks” and from the first week of the invasion had transitioned to using electronic workflow and digital signatures.
“From the first day of the Russian invasion, all employees had the opportunity to choose a safe place of work within Ukraine or abroad by their own discretion,” he says. As of early October all staff had elected to return to the office.
So far this year, the ECA says it has provided Hrn71mn in coverage for 26 projects cumulatively valued at Hrn468mn, with Germany, Poland and Bulgaria the top export destinations. It is targeting coverage of Hrn2bn-worth of exports by the end of the year.
Hashev adds that the agency has fielded 150 applications for coverage under a joint pre-export financing programme with local banks, which are currently under consideration.
Currently, the ECA offers insurance of suppliers’ credits for Ukrainian exporters and can insure loans and guarantees provided by Ukrainian lenders. Coverage for foreign buyers and banks is currently not possible because of Ukraine’s low sovereign rating due to the war, but Hashev adds that the majority of Ukrainian exporters are seeking “affordable financing from Ukrainian banks” which he says “is exactly what we can help with”.
The agency is also set to benefit from a “significant” expansion in its capabilities, laid down in legal changes recently approved by the Ukrainian cabinet and which will take effect in January next year.
The changes include the National Bank of Ukraine (NBU), the country’s central bank, allowing commercial banks to use ECA insurance contracts as loan collateral. The agency also received a licence from the central bank, which becomes its regulator.
“All these changes will enhance the performance capability of ECA products and establish co-operation with banking institutions,” Hashev says.
Ukrainian export volumes slumped by 30% in the first half of 2022 compared to the same period in 2021, according to the ECA, as the war ravaged the local economy. Imports almost halved during the same period. In addition to the disruption to production, Ukraine’s Black Sea ports have come under Russian fire, and the country’s airspace is closed to cargo traffic.
A deal struck by Kyiv and Moscow, brokered by Turkey, allowing the shipment of Ukrainian commodities, has been a reprieve for exporters.
While Ukreximbank, the country’s state-owned export-import bank, has also continued to operate during the war, the government is encouraging banks to extend financing to exporters.
Ukraine’s economy minister Yuliya Svyridenko told a meeting of bankers in late September: “The main task for us during the war is to restart the economy. In the first half of the year, we have a 24% drop in exports [by value].”
“We are currently working on stimulating export operations,” she told the meeting, which included representatives of state banks as well as Raiffeisen Bank and Crédit Agricole. “I really want commercial banks to help in this and instead of deposit certificates of the NBU invest in lending to the real sector of the economy.”