Exports play a key role in the development of the European economy and are a key source of employment in the EU. More than 30 million jobs already depend on exports outside the EU. 90% of future global growth will happen outside Europe’s borders, and industry accounts for 80% of exports. European Banks are the main financiers of the European Economy (financing more than 70% of the external financing needs of the European corporates), and they are a key partner for companies in the continent and beyond that want to grow and trade beyond their national borders
The Export Finance market is a sometimes unknown but vital part of the economy, that ensures the viability of trade and the safe and balanced provision of credit that exporters and importers need in order to succeed in their businesses.
Be it on their own for long-term or short-term trade finance solutions, or in conjunction with the support of public Export Credit Agencies (ECAs), banks finance and guide customers forward in a way that they safely conduct their key activities and go out to the market in confidence.
The EBF engages in all the critical work happening in terms of ECA & Banking regulation through its Export Finance Working Group – composed of banking experts.
WHAT IS EXPORT FINANCE?
Export finance are all those transactions undertaken between a exporter / importer a bank, their counterparty and/ or insurance companies and Export Credit Agencies (when dealing with Export Credits) that ensure that an exporter and an importer can undertake their business in trust. The participation of financial intermediaries & insurance / public ECAs, guarantees the transaction is undertaken in good faith.
A short definition would be: Export finance, often referred to as “Trade and Export Finance” or “Export and Project Finance”, is the provision of dedicated funding and insurance products that reduce the risks of selling goods and services internationally (Acre Impact Capital / Rockefeller foundation).
The common products found in trade and export transactions are the following:
- Import/ Export Letters of credit (L/C)
- Loans for Import/Export (can be covered with credit insurance products)
- Performance Guarantees and Standby Letters of Credit
- Supply Chain Finance (Payables Finance)
- Some instances of specific Project finance / Commercial finance
- Products for which an ECA has provided a state-backed guarantee or insurance to the financing bank
- Banks’ lending related to public credit risk transfers and political risk mitigation
- Bank lending in public-supported trade facilitation transactions
Customers chose export finance solutions provided by banks as it is a safe and long-term financing business that entails very low risks of failing or defaulting (2019 ICC Trade Register data confirms this).
In addition, to support companies to export and thrive in a global economy, Export Finance is also a critical part of the development finance and sustainable finance agendas (with Export Finance having some of the highest ratios of sustainability / total transactions in the market. Given the high level of compliance and rules governing the transactions, all steps can be traced from importer to exporter, banks and ECAs, ensuring that transparency, public support interests and international agendas are complied with (see TXF / Acre Impact Capital).
For further data on ECA backed transactions, please see OECD and Berne Union.