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Managing International Credit
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Managing International Credit

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Information on how to manage credit risk during the economic downturn and recovery. Topics include exporting, purchasing power, credit demand, and risks.

Information on how to manage credit risk during the economic downturn and recovery. Topics include exporting, purchasing power, credit demand, and risks.

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  • 1. CMA Webinar - 8 October 2009 MANAGING INTERNATIONAL CREDIT RISK DURING THE ECONOMIC DOWNTURN AND THE COMING RECOVERY PRESENTED OCTOBER 2009 BY GARY MENDELL MERIDIAN FINANCE GROUP
  • 2.
    • 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.
    •  
    Exporting in the Economic Downturn
  • 3.
    • 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.
    Purchasing Power in Other Countries
  • 4.
    • Little or no SME lending by local banks
    • Limited access to capital from non-bank lenders
    • Currency exchange/transfer controls
    • Inability to remit cash in advance
    • Bank fees/rates too high to open L/Cs
    • Pushing you and other suppliers as a competitive tactic
    • Need for working capital via longer payment terms
    • Making credit a condition for representation
    • Maintaining in-country supply chains
    • Keeping doors open in strategic markets
    Credit Demand During Downturn
  • 5.
    • Voluntary bankruptcy
    • Involuntary receivership
    • Other forms of insolvency (e.g. just closing the doors)
    • Protracted slow payment for any number of reasons
    • Cash flow problems
    • General economic conditions in export markets
    • Currency fluctuations
    • Foreign exchange/transfer controls
    • Expropriation and other risks to assets
    • War, strikes, civil strife, political violence
    Export Credit Risks in Downturn
  • 6.
    • High interest rates from local banks and other lenders
    • Limited access to longer-term financing
    • Desire for working capital via longer payment terms
    • Refusal to pay cash in advance
    • Unwillingness to absorb fees/hassles of opening L/Cs
    • Pushing you and other suppliers as a competitive tactic
    • Making credit a condition for distribution
    • Insisting on terms for stocking inventory
    • Credit to facilitate supply chain benefits
    • Building brand recognition in other countries
    • Expanding share in new strategic markets
    Credit Demand During Recovery
  • 7.
    • Customer bankruptcy, receivership, or insolvency
    • Protracted slow payment for any number of reasons
    • Balance sheet issues (working capital, leverage, etc.)
    • General economic conditions in export markets
    • General economic conditions in domestic markets
    • Inflation risk (hot economy, currency devaluations, etc.)
    • Over-anticipation of demand for products
    • Superior selling by local/foreign competition
    • Payment delays caused by exchange controls
    • Changes in import or export regulations
    • Trade sanctions, embargoes, etc.
    Export Credit Risks for Recovery
  • 8.
    • Europe Latin America
      • Northern Europe Mexico
      • Southern Europe Brazil
      • Eastern Europe Chile
      • Colombia
    • Asia Peru
      • Japan Argentina
      • China Ecuador
      • India Venezuela
      • Pacific Rim Bolivia
      • Central America
    • Middle East
    • Saudia Arabia/UAE Africa
      • Turkey Sub-Saharan
      • Israel Southern Africa
    Credit Overview by Region
  • 9. Sources of Int’l Credit Information
    • Trade supplier credit references
    • Credit agency reports
    • Financial statements
    • Bank references (limited availability and usefulness)
    • Industry-specific creditor groups
    • Specialized industry resources
    • Personal visits (essential ahead of recovery)
    • Time in business
    • Local reputation, market share, etc.
    • On-line, legal, news-wire info
    • Juxtaposition of all of the above
  • 10. Credit Risk Mitigation
    • Cash-in-advance or partial deposits
    • Usance or standby letters of credit
    • Notes, drafts, documentary collections
    • Payment from bank account in USA
    • Direct revenue remittances
    • Legal/enforceable documents
    • Linguistic competence
    • Export credit insurance:
    • protects foreign receivables against virtually all commercial/political non-payment risks
  • 11.
    • 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
    • Several insurers have expanded their trade credit products
    • Non-cancelable limits are still available
    • ECAs especially supporting their exporters
    • Private sector still perceives growth market
    Export Credit Insurance - Update
  • 12.
    • Insureds with existing policies receiving favorable treatment
    • Strong preference for multiple-buyer spreads of risk
    • Less interest in underwriting single-buyer coverage
    • Lender preference for ECAs but content issues limit utility
    • In some cases irrational concerns regarding private sector
    • Some applications being submitted too late vs credit issues
    • Non-cancelable limits available but hard to underwrite
    • Policies with cancelable limits exercising that option
    • Higher premium rates and deductibles
    • Larger discretionary limits to address demand
    • Unprecedented increase in market awareness
    Export Credit Insurance Trends
  • 13.
    • Increasing market share for Ex-Im Bank and other ECAs despite limitations of content requirements
    • Growth also in use of private-sector coverage, especially for experienced exporters with cogent credit procedures
    • Trend towards underwriting exporter credit procedures, performance, and cogency of underlying transactions in addition to stand-alone creditworthiness of foreign buyers
    • It will be a long time before underwriting
    • returns to exuberance of a few years ago
    • Strategic projection is for significant growth
    Export Credit Insurance Outlook
  • 14.
    • TRADE FINANCE
      • Cross-Border Equipment Financing
      • Foreign Buyer Credit Facilities
      • Note Purchase Agreements
      • Custom Financing Structures
    • INSURANCE
      • Export Credit Insurance
      • Political Risk Coverage
      • Domestic Receivables Insurance
      • Policies for Financial Institutions
    Meridian Finance Group
  • 15.
      • Meridian Finance Group
      • 1247 7th Street, Suite 200
      • Santa Monica, CA 90401
      • Tel: 310 260 2130
      • Fax: 310 260 2140
      • [email_address]
      • www.meridianfinance.com
    For More Information: