This piece of sponsored editorial appeared in the July/August print edition of Trade Finance magazine under the title: KEIC pledges to support and reassure customers in times of difficulties.
KEIC, a reliable partner in stormy times
Amid the global economic downturn hit hard by the sub-prime mortgage crisis, KEIC established the Business Contingency Plan at the end of year 2008. KEIC made best efforts to respond to market demands in the past. However, we must move beyond in this challenging year.We need a contingency plan to react as promptly and efficiently as possible in the volatile market atmosphere.
The spirit behind the Plan is to serve as a reliable partner for our clients facing the unprecedented financial turmoil. By the Business Contingency Plan, we pledge to support and reassure our customers in times of difficulties, acting as their umbrella to shield from the rain.
ECAs are expected to step up and help commercial market players under tough market conditions as one of the important functions of ECAs is counter-cyclicality. I believe that ECAs should serve as a last resort in the trade finance market during difficult times when commercial banks are forced to reduce their business or leave the market. Since the Republic of Korea is an export-driven economy, KEIC has a strong rationale to fill the gap in the trade finance market to minimize the impacts on the trade flows by Korean entities from the credit crunch.
Active response to market demands
KEIC keeps adjusting programmes and their operational schemes to react to new market conditions whenever necessary.
Our latest responses are:
- Provide a 100% cover if deemed necessary – in the past, the percentage of cover offered was typically 95% or below.
- Launch a bridge loan cover to help project sponsors obtaining financing so that their projects can be carried on even under difficult financial conditions.
- Take refinancing risk embedded in a financing structure such as mini-perm on a case-by-case basis. Noting that market practice is changing to adapt to the current financial conditions, it is thought essential to take on such risk, to some extent, in addition to other typical risk elements.
- Enhance cooperation with other ECAs/DFIs through re-insurance programmes to facilitate multi-sourcing and/or mega-sized projects.
Excellent business performance continues
In 2008, KEIC’s business volume increased to KRW130 trillion (app. US$124.5 billion), up 42% from the previous year in tandem with increases in Korean exports and overseas business. Such a notable achievement placed KEIC to rank 4th in business volume among global ECAs according to Berne Union statistics.
The business volume for medium and long-term transactions in relation to exports of capital goods and services and overseas business by Korean companies soared up to KRW19 trillion (app. US$17.7 billion), up 131% from the previous year. According to Dealogic, KEIC was ranked 2nd as ECA guarantor in terms of ECA-backed loans in the period of the first three quarters of 2008.
This year the overall market size for trade finance will shrink as the global trade volume decreases. However, the demand for ECAs’ support is increasing since the commercial financiers have been severely impacted by the financial crisis.
Taking the complex market situation into account, KEIC projected, when establishing the Business Contingency Plan at year-end 2008 that this year’s business volume would reach up to KRW170 trillion, up 31% from 2008.
As of the end of June 2009, the projection turned out to be correct as the overall business volume jumped to KRW98.6 trillion, up 37% compared to the same period last year. Such a strong performance was mainly driven by short-term credit business activities. Nevertheless,
it is worthwhile noting that our untied loan insurance programme, i.e. Overseas Business Credit Insurance has successfully operated since the inception in December 2006; its business volume in 2008 rocketed to US$1.2 billion from US$200 million in the previous year. The volume for this year is expected to continuously expand given the volume of US$2 billion as of end-June has already surpassed last year’s.
