Managing International Credit Risk

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Information for managing international credit risk during the economic downturn and the coming recovery.

Information for managing international credit risk during the economic downturn and the coming recovery.

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  • 1. CMA Webinar
    MANAGING INTERNATIONAL CREDIT RISK DURING THE ECONOMIC DOWNTURN
    AND THE COMING RECOVERY
    PRESENTED
    FEBRUARY 2010
    BY GARY MENDELL
    MERIDIAN FINANCE GROUP
  • 2. Exporting in the Economic Downturn
    Amidst the challenges in the world’s present economic
    situation, there are also opportunities for growth. The global
    financial crisis is not affecting every sector of the real
    economy. Many companies will continue to grow and in
    many cases their growth will come from export sales.
    While total export volumes may fall short of
    earlier projections, worldwide market
    demand for goods and services will continue
    to engender a considerable amount of
    international trade, and even expansion
    in some sectors.
     
  • 3. Purchasing Power in Other Countries
    The U.S. economy is projected to continue declining for some
    time before it begins to recover, but with just five percent of
    the world’s population and less than one-quarter of global
    GDP, the U.S. is not the only country with purchasing power.
    While all countries are linked to some degree
    by economic interdependence, different cultural,
    political, and market forces will lead Europe,
    Asia, Latin America, and other regions each
    on their own trajectory during the present
    downturn and into the coming recovery.
  • 4. Credit Demand During Downturn
    • Little or no lending by local banks
    • 5. Limited access to capital from non-bank lenders
    • 6. Currency exchange/transfer controls
    • 7. Inability to remit cash in advance
    • 8. Bank fees/rates too high to open L/Cs
    • 9. Pushing you and other suppliers as a competitive tactic
    • 10. Need for working capital via longer payment terms
    • 11. Making credit a condition for representation
    • 12. Maintaining in-country supply chains
    • 13. Keeping doors open in strategic markets
  • Export Credit Risks in Downturn
    • Voluntary bankruptcy
    • 14. Involuntary receivership
    • 15. Other forms of insolvency (e.g. just closing the doors)
    • 16. Protracted slow payment for any number of reasons
    • 17. Cash flow problems
    • 18. General economic conditions in export markets
    • 19. Currency fluctuations
    • 20. Foreign exchange/transfer controls
    • 21. Expropriation and other risks to assets
    • 22. War, strikes, civil strife, political violence
  • Credit Demand During Recovery
    • High interest rates from local banks and other lenders
    • 23. Limited access to longer-term financing
    • 24. Desire for working capital via longer payment terms
    • 25. Refusal to pay cash in advance
    • 26. Unwillingness to absorb fees/hassles of opening L/Cs
    • 27. Pushing you and other suppliers as a competitive tactic
    • 28. Making credit a condition for distribution
    • 29. Insisting on terms for stocking inventory
    • 30. Credit to facilitate supply chain benefits
    • 31. Building brand recognition in other countries
    • 32. Expanding share in new strategic markets
  • Export Credit Risks for Recovery
    • Customer bankruptcy, receivership, or insolvency
    • 33. Protracted slow payment for any number of reasons
    • 34. Balance sheet issues (working capital, leverage, etc.)
    • 35. General economic conditions in export markets
    • 36. General economic conditions in domestic markets
    • 37. Inflation risk (hot economy, currency devaluations, etc.)
    • 38. Over-anticipation of demand for products
    • 39. Superior selling by local/foreign competition
    • 40. Payment delays caused by exchange controls
    • 41. Changes in import or export regulations
    • 42. Trade sanctions, embargoes, etc.
  • Credit Overview by Region
    Europe Latin America
    Northern Europe Mexico
    Southern Europe Brazil
    Eastern Europe Chile, Colombia , Peru
    Argentina, Ecuador
    Asia Venezuela, Bolivia
    Japan Central America
    China
    India Africa
    Pacific Rim Sub-Saharan
    Southern Africa
    Middle East
    Saudi Arabia/UAE
    Turkey
    Israel
  • 43. Sources of Int’l Credit Information
    • Trade supplier credit references
    • 44. Credit agency reports
    • 45. Financial statements
    • 46. Bank references (limited availability and usefulness)
    • 47. Industry-specific creditor groups
    • 48. Specialized industry resources
    • 49. Personal visits (essential ahead of recovery)
    • 50. Local reputation, market share, etc.
    • 51. On-line, legal, news-wire info
    • 52. Juxtaposition of all of the above
  • Credit Risk Mitigation
    • Cash-in-advance or partial deposits
    • 53. Usance or standby letters of credit
    • 54. Notes, drafts, documentary collections
    • 55. Payment from bank account in USA
    • 56. Direct revenue remittances
    • 57. Legal/enforceable documents
    • 58. Linguistic competence
    • 59. Export credit insurance:
    protects foreign receivables against virtually all commercial/political non-payment risks
  • 60. Export Credit Insurance - Update
    While constrained by increasing claim activity, contracting
    reinsurance capacity, and other factors engendered by the
    economic downturn, export credit insurance underwriters
    remain active and to the extent possible are rising to the
    challenge of continuing to support international trade credit.
    • No insurers have entirely exited the trade credit market
    • 61. Several insurers have expanded their trade credit products
    • 62. Non-cancelable limits are still available
    • 63. ECAs especially supporting their exporters
    • 64. Private sector still perceives growth market
  • Export Credit Insurance Trends
    • Insureds with existing policies receiving favorable treatment
    • 65. Strong preference for multiple-buyer spreads of risk
    • 66. Less interest in underwriting single-buyer coverage
    • 67. Lender preference for ECAs but content issues limit utility
    • 68. In some cases irrational concerns regarding private sector
    • 69. Some applications being submitted too late vs credit issues
    • 70. Non-cancelable limits available but hard to underwrite
    • 71. Policies with cancelable limits exercising that option
    • 72. Higher premium rates and deductibles
    • 73. Larger discretionary limits to address demand
    • 74. Unprecedented increase in market awareness
  • Export Credit Insurance Outlook
    • Increasing market share for Ex-Im Bank and other ECAs despite limitations of content requirements
    • 75. Growth also in use of private-sector coverage, especially for experienced exporters with cogent credit procedures
    • 76. Trend towards underwriting exporter credit procedures, performance, and cogency of underlying transactions in addition to stand-alone creditworthiness of foreign buyers
    • 77. It will be a long time before underwriting
    returns to exuberance of a few years ago
    • Strategic projection is for significant growth
  • Meridian Finance Group
    • TRADE FINANCE
    • 78. Cross-Border Equipment Financing
    • 79. Foreign Buyer Credit Facilities
    • 80. Note Purchase Agreements
    • 81. Custom Financing Structures
    • 82. INSURANCE
    • 83. Export Credit Insurance
    • 84. Political Risk Coverage
    • 85. Domestic Receivables Insurance
    • 86. Policies for Financial Institutions
  • For More Information:
    Meridian Finance Group
    1247 7th Street, Suite 200
    Santa Monica, CA 90401
    Tel: 310 260 2130
    Fax: 310 260 2140
    gmendell@meridianfinance.com
    www.meridianfinance.com