Export Credit Availability and the Euro Debt Crisis
| Published date | 01 February 2013 |
| DOI | http://doi.org/10.1111/1758-5899.12022 |
| Date | 01 February 2013 |
| Author | Peter Luketa |
Export Credit Availability and the Euro Debt
Crisis
Peter Luketa
Global Head, Export Credit and Global Specialised Finance, HSBC
At the time of writing this analysis (December 2012), a
number of uncertainties remain around both the euroz-
one crisis and the general global economic climate. For
example, China is certainly experiencing a slowdown in
growth and Brazil has responded to its economic down-
turn by implementing a stimulus package for infrastruc-
ture development. Investment in infrastructure globally
will play a major part in economic regeneration. Given
the continued restrictions in the commercial debt mar-
kets, continued constraints on dollar liquidity and uncer-
tainty over long-term sources of funds, export credits will
continue to play a major part in the long-term financing
solution of capital expenditure globally over the next few
years.
Against this backdrop, it is evident that the volumes of
export credit agency (ECA)-covered medium-term export
credit continue to be robust. Dealogic are showing first-
half 2012 volumes of $60.3 billion. An estimate of 2011
volumes was $90 billion (20 per cent up on the previous
year). These figures should be compared to a market size
of some $35 billion per annum in the pre-Lehman-crisis
years. Another significant fact is that the size of deals
has grown considerably, with a number of $1-billion-plus
(ECA portion) deals being transacted both recently and
currently –these were rare in the early part of this cen-
tury. Resources and energy, transportation and telecom-
munications continue to be key sectors for the ECA
product. However, we have also witnessed financing of
ECA-backed loans in sectors such as animal husbandry,
demonstrating the versatility of the product. As global
capital expenditure demand continues to rise, we have
seen new market opportunities occur in countries such
as Australia, where capital expenditure in liquefied natu-
ral gas (LNG) as well as metals and mining projects is
expected to be $15 billion in 2012 alone. Given the
repeatedly gloomy forecasts of modest global economic
growth, it is expected that the major ECA providers will
receive continued and positive support from govern-
ments keen to stimulate exports. For example, the reau-
thorisation of the US Export-Import Bank mandate was
debated in early 2012. Eventually, both sides of the Sen-
ate supported the bill with an increased limit of $140 bil-
lion for the next four years.
A significant trend for the ECA product following both
the Lehman and initial eurozone crises has been the
acknowledgement by chief financial officers (CFOs) and
treasurers in corporations as well as governments and
financial institutions that export credit facilities offer a
stable and relatively cheap source of medium-term fund-
ing at a time of extreme volatility in the commercial debt
markets. Previously, the ECA programmes had been dis-
regarded by many as bureaucratic, inflexible, uncompeti-
tive and time-consuming. That attitude has changed
substantially: governments have taken a proactive
approach towards their respective ECA capabilities, and
export financing institutions have demonstrated notably
higher risk awareness.
The scarce availability of long-term dollars has under-
pinned margin during the last four years, and there were
significant hikes in the second half of 2011. During the first
half of 2012, margins were beginning to stabilise and, in
certain sectors, to decrease. However, the storm clouds of
increased regulation are once again looming, with the
Financial Services Authority (FSA) in London threatening
to impose draconian risk weighting on cross-border coun-
try risk from 2013 and the Basel III impact still under con-
sideration. Once again, the banking community is
expected to increase its lending requirements to support
economic growth while being handicapped by restrictions
on capital and balance sheet. The European Central Bank
(ECB) interventions at the end of 2011 and in the first quar-
ter of 2012 mean that euro funding has become cheaper;
its actions have also had a positive effect on sentiment
benefit as more confidence has fed into the inter-bank
market. The impact of the various crises has certainly
weighed heavily on European bank balance sheets, and
this is evidenced by the retreat of a number of those banks
from markets in Asia, the Middle East and Latin America. It
has also reduced the number of truly global banks active
in the ECA business, with a move towards a more regional
focus instead. Competition will prevail in the key markets,
but this will also have a detrimental effect on marginal
markets and transactions as the core banks become more
selective and prioritise clients and transactions.
As an antidote to the liquidity squeeze, many govern-
ments have introduced direct funding schemes. This has
©2013 University of Durham and John Wiley & Sons, Ltd. Global Policy (2013) 4:1 doi: 10.1111/1758-5899.12022
Global Policy Volume 4 . Issue 1 . February 2013
114
Special Section Article
To continue reading
Request your trial