Thursday 4 May 2017

CHAIRMAN'S MESSAGE - Sean Edwards, ITFA Chairman / Head of Legal at SMBC

Dear Members and Friends,

In a fractious and at times apparently increasingly segmented world, where trade barriers, or the prospect of them, and technological advances such as 3-D Printing seem to be pushing us ever more inward and localised, it is heart-warming to see that the desire for standardisation embodying best practice, sound governance and legal certainty is alive and well amongst bankers. Especially so in the trade finance community which regulators still conceive of as riddled through with fraud and money-laundering. The thought came home to me forcefully whilst speaking on behalf of the association at a number of conferences and ITFA events recently. In the big ecosystem of supply chain finance (see the recent Standard Definition for Techniques of Supply Chain Finance published last year by ITFA and BAFT amongst others) the requests for global standards have been very vocal. My own view is that a single set of rules for this market is neither practical nor desirable and may stifle the creativity which has been so prevalent if such rules were ever to become mandatory but governance and best practice is an objective worth fighting for. With the attitude I have seen evidenced recently we have made a good start on this journey.

Looking at the markets, the beginning of the month saw investors begin to question the sustainability of the emerging-market revival that channelled almost $60 billion into assets of developing economies during the first months of 2017. While money is still flowing in, some investors were a bit weary, and held back from pumping more money in, as worries that the buying spree, which helped give emerging-market stocks and currencies their best quarter in two years, has resulted in heightened valuations.

Geopolitical tensions heightened during the month. With tension growing between the U.S. and North Korea, there is elevated political risk from many angles. This coupled with the uncertainty in the run up to the French presidential elections halted flows into the asset class. However, following the first round of elections in France, flows picked up into emerging markets as the likelihood of Macron emerging victorious in the second round grew, fuelling a much needed end of month rally across all emerging market asset classes.

In the May edition of the ITFA Newsletter you will find an interesting article entitled ''The Lighthouse Keepers'' written by Benyamin Ali of TFR.  We are also printing the letter of support written by Mr. John Danilovich (Chairman of ICC), on the submission to UNCITRAL (United Nations Commission on International Trade Law) for recognition of the URF. UNCITRAL has adopted all the major rules relating to trade finance such as the UCP and, whilst the process is a little dry, the submission is an important reminder of the continuing reliance of our core product. You will also find our regular feature - Chart of the Month, contributed by Dr. Rebecca Harding of Equant Analytics. Furthermore, ITFA updates its readers on the CEE-CIS regional event which took place in Vienna on 5th April 2017.

Conference season is well and truly upon us but I take this opportunity to remind you that the very best of them all (you will forgive my slight exaggeration), the annual ITFA shindig, will be held in Edinburgh between the 6th and 8th of September 2017. This year we will be greeting you at the Caledonian Hotel, which is situated in the heart of Edinburgh. At this point we urge you to Save the Date and to keep following our regular updates. As always, ITFA ensures that this well-awaited annual event provides a perfect mix of education, information, networking and partying in just the right measures.

We look forward to hearing from you with any feedback you may want to share with us by sending an email to myself, any of the Board Members or to our general email,  

Best wishes,

Sean Edwards

Wednesday 3 May 2017


As global economic uncertainty has risen, so too has the relevance and attractiveness of export credit agencies. Have they now reached the peak of their activity, or is there more to come? Binyamin Ali (TFR) reports.

Export credit agencies (ECAs) have experienced a massive surge in demand for their services over the last decade. From becoming involved in (or extending their reach in) short-term credit financing, capital markets, and in some cases covering risks associated with domestic operations, the remit and competitiveness of ECAs has been pushed further and further to completely new levels.

The 2008 financial crisis was an unquestionable catalyst in creating the new role ECAs now play in global trade. As some banks tumbled and others were bailed out by their governments, lenders and private insurers pulled out from one industry after another, as consolidation and risk reduction became the only viable strategy for the road ahead.

As providers of counter-cyclical support, ECAs began to step into the areas the private sector vacated to support their national exporters. For export driven countries such as Finland where exports of goods and services accounted for almost 45% of GDP in 2008[i], this meant changing their approach and finding new ways to support their exporters.

''I have been with Finnvera for 18 years and when I joined we were mainly covering bank risk and sovereign risk. The biggest changes I have seen came after the financial crisis in 2008. We very quickly put up this temporary financing scheme for export credit,'' says Topi Vesteri, deputy CEO and group chief credit officer for Finnvera, Finland’s ECA. 

''But as we know, there’s nothing as permanent as a temporary state scheme. So it is now permanent and it is important for those exporters who are competing with competitors from those countries who also offer funded export credits.''

And with that, Finnvera’s remit was extended to include direct lending. But in order to establish their export credit financing scheme, Finnvera had to obtain a waiver from the EU as ECAs in EU states were prohibited from covering ''marketable'' risks in 1999. The EU defines marketable risks as ''risks for which in principle a market exists, i.e. there is a private insurance capacity available to cover these risks.''[ii] The definition adds, ''Which risks are marketable may evolve over time.''

''In the beginning it went very well,'' says Vesteri of the EU’s attempt to remove distortions in the market created by private and public credit insurers competing with each other.

''The private market was doing their job and covering the short term risk in industrial countries for up to two years. But then when the financial crisis hit, you could just see the private credit insurance market closing their limits country by country and industry by industry. There was a bit of both. There was a time when the private market was not covering anything to do with the automobile industry or not covering anything to do with the Baltic states.''

As well as struggling to secure insurance cover from the private market, businesses also experienced difficulty in accessing liquidity. Quantitative easing programmes were put in place in the US, the UK, Japan, the EU, and more recently Sweden, as they sought to encourage lending and stimulate growth. In the case of exporters, governments looked to their ECAs to innovate and come up with solutions as what was considered ''marketable'' by the private market pre-2008 had changed, and with that change in classification risk appetites noticeably dropped too. 

Defining flexibility

Owing to the flexibility ECAs must demonstrate in times of uncertainty (as in 2008), it has become harder and harder to define them. The diversity to be found in ECAs across the world hasn’t helped the pursuit of a simple definition. They differ in terms of what they do and don’t do, right the way through to who owns them and how they’re authorised. UK Export Finance (UKEF) started out life in 1919 as a department of government (Export Credits Guarantee Department (ECGD)), which continues to be wholly state owned, does not have a limited tenure, and provides some of the most diverse financing and insurance structures of any ECA.

Meanwhile Germany’s Euler Hermes is completely privatised (Allianz is the majority stakeholder) and exclusively manages the country’s export credit guarantee scheme. Export Development Canada (EDC) defines itself as ''a self-financing, Crown corporation that operates at arm's length from the government.'' EDC also has one of the most comprehensive ECA mandates and has previously had stints where it was tasked with supporting domestic trade and business opportunities by the Canadian government.

The Export-Import Bank of the United States (US Ex-Im) on the other hand has the capacity to provide credit insurance, direct loans, loan guarantees and capital finance. But it needs to be reauthorised every few years, depending on the length of its previous reauthorisation. This last occurred on 4 December 2015 when President Barack Obama authorised the bank until 30 September 2019. A delay in the nomination of key positions to the bank’s board (owing to a political manoeuvre by Republicans) has meant US Ex-Im is unable to exercise its full remit and can only issue a maximum of US$10m in financing. 

As a result, US Ex-Im has effectively been unable to act in any meaningful way since June 2015, but given the scale of the US domestic market, private banks and insurers have been able (in places) to step in. In comparison, it is hard to see how a similar situation would be sustainable for an export driven economy such as Finland’s, for example.  

Clearly, there is no one size fits all structure or mandate for an ECA as individual countries have always pursed their own interests, and their national credit agency has a role to play in that strategy. Turkey’s ECA, Turk Eximbank (which is 30-years-old this year), aspires to be an all encompassing one-stop shop with credit, guarantee and insurance facilities, and has a key role to play as the country attempts to realign itself from being an exporter of consumer goods to an exporter of capital goods.

''Now we support 7,700 companies in terms of loan and insurance support. We provide 6,400 companies with loan facilities and 2,200 with insurance. We would like to reach out to as many as 100,000 companies of which 65,000 are exporters. That is our long term goal,'' says Adnan Yıldırım, CEO of Turk Eximbank. ''However, now, we are ready for more complicated and sophisticated, mostly, capital goods. Turkey’s potential to transform our export portfolio into capital goods production has been increasing.''

Turk Eximbank now covers approximately 23% (US$30.3bn) of Turkey’s total export volume, and in providing almost three times as many exporters with loan facilities than it does insurance, reflects the global activity of ECAs. In 2016, ECA backed loans accounted for 56.9% of ECA structures, while direct loans accounted for 33.4%. The fact that loan-related structures account for so much (93.9%) of what they are doing is a reflection of what ECAs currently are – providers of liquidity and liquidity insurers.

Storm clouds ahead?

With only the OECD’s generous Arrangement on Guidelines for Officially Supported Export Credits (backed as it is by a non-binding ‘gentleman’s agreement’ and not by law) simultaneously acting as the only check (for non-EU states) on the fulfilment of certain minimum requirements and working to bring some degree of a level playing field to the ECA landscape (participation in the Arrangement is voluntary, with China’s Sinosure being a notable absentee), the mandate of the ECA is set to remain flexible and the facilities at its disposal diverse. 

Gordon Welsh, head of business group at UKEF, thinks this flexibility will become even more crucial over the coming years as regulation on banks grows more stringent, and the need for ECAs to innovate grows with it.       

''I think Basel III will be a development to watch as it will make ECA-backed financing even more attractive for banks. Whatever the outcome, UKEF is well equipped to help bridge funding gaps should they arise with products like direct lending, export refinancing and our capital markets offering,'' says Welsh.

''From June, we’ll be partnering with banks to deliver government-backed trade finance support directly to exporters for transactions under £2m, which should significantly increase the scale of support we’re able to offer. We’ll also be making this trade finance support available to companies in exporters’ supply chains.''

UKEF’s perception that a functional ECA needs to innovate and remain proactive in order to give its exporters a competitive edge shows no signs of softening, and the same is true of credit agencies across the world. Last year, direct loans from ECAs accounted for US$28.9bn of global export finance (23% of all export finance volumes, but financial institutions retained the lion’s share, accounting for 51.8% (US$64.2bn). As the combined effects of regulation and desriking, as well as the rise in anti-globalisation sentiment, populism and protectionism all come together to stifle trade and strangle its sources of finance, Welsh remains confident of what this means for ECAs.  

''The main point I’d like to make is that I think the fast-changing global and political landscape is making ECAs more relevant than ever. Our role is to provide certainty of support in an uncertain market.''

[i] Data from World Integrated Trade Solution:
[ii] EUR-Lex, Access to European Union Law:


Letter by Mr. John Danilovich, Secretary General of the International Chamber of Commerce

In partnership with the International Trade & Forfaiting Association (the “ITFA”), the International Chamber of Commerce (the “ICC”) has developed the first ever global rules for forfaiting, the Uniform Rules for Forfaiting, ICC publication No. 800 (the “URF 800”). The URF 800 is a set of standardized terms and conditions applicable to a forfaiting transaction when the parties indicate that their forfaiting agreement is subject to these rules. The URF 800 drafts were reviewed and commented upon by over 500 members of the ICC Banking Commission and ICC National Committees in 92 countries before adoption by the ICC Banking Commission at its biannual mee ting held in Mexico in November 2012. The URF 800 came into effect on 01 January 2013. 

A result of a three and half year joint effort by the ICC and the ITFA, the URF are the first ever global rules for forfaiting and have been developed to take into acco unt the legitimate expectations of all relevant sections with the aim of becoming the standard set of rules applied within the forfaiting market worldwide in all developed countries as well as many emerging markets. The current market size of forfaiting is estimated to be close to USD 300 billion per year. 

Forfaiting is a trade financing technique based on discounting of an exporter’s receivables payable at a future date without recourse to the exporter. The “without recourse discounting” benefits the exporter immensely by eliminating risks typically associated with an international trade transaction such as country risk, commercial risk, interest risk and currency rate risk, improving cash flow of the exporter and enhancing exporter’s competitive advantage by offering attractive credit terms to the importers/buyers. 

Comprising of a total of 14 articles, the URF 800 cover the entire gamut of a forfaiting transaction starting from the origination of a forfaiting transaction in the primary market and the trading of the forfaited asset in the secondary, market providing access to a deep and liquid market which can provide much needed funding to producers, manufacturers and exporters and also assist banks in managing their portfolios and credit exposures. 

We are submitting to you the full URF 800 text along with a summary note on forfaiting. ICC trusts that UNCITRAL will appreciate the efforts made by ICC to promote international trade through forfaiting as a flexible and creative alternative to traditional trade financing, helping exporters to cover the political, commercial and transfer risks in an export transaction, especially involving emerging markets/developing nations and thus facilitating international trade which is now well recognized as an engine for economic development and growth. 

Therefore, as with previous requests for endorsement of ICC rules, we hereby request formal endorsement of the URF 800 by UNCITRAL. We hope to receive a favourable response to this request.


Just how globalised is France?

The French election campaign has raised some important questions: first, what is France’s role in the world, and second how can that role be articulated to its citizens? It is easy to campaign on the back of a view “for” or “against” globalisation. But the reality may well be more complex: to many, globalisation is a threat and it is therefore the next President’s responsibility, to explain why France would do itself great damage by extracting itself from the global, free-trade economy.

France is the fifth largest trading nation in the world with its exports contributing over US$ 600bn in 2016 to the country’s GDP. France is also the fourth most open economy in the G20 measured as the proportion of GDP accounted for by trade at 48% compared to 43% in the UK, for example. While this is not as open as Germany, at 63%, it still shows that trade matters to the French economy and French jobs. More than this, out of France’s 12 largest trade partners, 7 are in Europe (Figure 1), although trade outside of the EU, particularly with the US, China and the UAE is growing more quickly than trade with its European partners.  France’s exports to Germany were worth US$ 80.5bn in 2016 and exports to the US worth US$ 50bn but the growth with the US suggests the gap is not necessarily permanent.

Figure 1:   Projected growth in trade between France and its top partners ordered by size left to right, 2016-2020 (CAGR, %)

Source:     Equant Analytics, 2017


As planned,  ITFA CEE-CIS Regional Spring Educational Event has taken place in a great location - UniCredit Bank premises at the Center of the City of Vienna and was followed by Cocktail Drinks at a traditional Wine Bar - MeinlBar. The event took place on 5th of April 2017.  

The event was a huge success and the team also had to announce, through the various ITFA platforms, that the event was oversubscribed due to the limited capacity of the venue.  

We had participants from 6 different countries: Austria, Czech Republic, England, Germany, Hungary, Slovakia and China. The day started with the Chairman’s opening Speech, followed by a speech from the host bank's, Mr. Robert Fleischmann (UniCredit Austria). 

Beside the over subscription and huge interest to this year’s Spring CEE-CIS event, the panel discussion on Credit & Political Risk Insurance, was a great success and received positive feedback, where members and participants had the opportunity to interact through a discussion platform.  

The evening Program was also well participated and we believe our members had the chance to network and get to know each other better in a friendly atmosphere.

The Agenda of the Day was as follows:
  • Strong, domestic demand driven growth in CEE, weak recovery in Russia - Mr. Gergely Tardos - Chief Economist of OTP Bank Plc.;
  • Supply Chain Finance (web-based IT platform for payables and receivables) - Mr. Robert Fleischmann - UniCredit Bank Austria AG and Mr. Manfred Mayer-Hoffmann - UniCredit Bank Austria AG;
  • Credit & Political Risk Insurance: drivers behind Banks' buying behaviour in a changing regulatory environment: Ms. Silja Calac – Swiss Re Europe S.A., Mr. Huw Owen – Liberty Specialty Markets, Mr. Matthew Beckett – SMBC Europe Ltd, Mr. Andrew van den Born – Willis Towers Watson;
  • Questions & answers;
  • Closing Remarks and organizational issues (Chairperson).
The ITFA team would like to thank all those who attended and helped make this event happen.