Analysis of short-term instruments of export financing as well as the various forms of financing via supplier credits for medium-term export financing, taking into account the risk protection costs


Bachelor Thesis, 2017

83 Pages, Grade: 1.3

Valentina Barysava (Author)


Excerpt

Table of contents

Table of contents

list of abbreviations

list of figures

table directory

1 Introductory remarks
1.1 Initial situation and problems
1.2 Goal of the work and personal motivation
1.3 Delimitation of the topic
1.4 Procedure

2 Theoretical basics
2.1 Methodology of work
2.2 Definition of important terms
2.3 Euromarket financing
2.4 acceptance credit
2.5 Export factoring
2.6 Forfaiting

3 State export credit insurance
3.1 OECD and Berne Union regulations
3.2 Forms of coverage by the waistband
3.2.1 supplier credit cover
3.2.2 manufacturing risk cover

4 Short-term financing. cost comparison
4.1 General starting position
4.2 Costs of the Hermes cover
4.3 overdraft costs
4.4 acceptance credit costs
4.5 Costs of export factoring
4.6 Comparison of costs

5 Short-term financing. SWOT analysis
5.1 overdraft facility
5.2 acceptance credit
5.3 export factoring
5.4 Comparison of the results of the SWOT analysis

6 Medium-term financing. cost comparison
6.1 General starting position
6.2 Hermes coverage costs
6.3 equity financing
6.4 debt financing
6.5 forfaiting
6.6 Comparison of costs

7 Medium-term financing. SWOT analysis
7.1 equity financing
7.2 debt financing
7.3 forfaiting
7.4 Comparison of the results of the SWOT analysis

8 Summary of the 59

9 Bibliography 61

10 Appendix 66

Abstract

This Bachelor thesis is aimed at all exporters who are interested in doing business with Belarus and who want to inform themselves about the coverage of del credere risks and export financing because export financing is nowadays expected as part of the offer. Consequently, the aim of this work is to examine the instruments of short-term export financing and the forms of medium-term financing, taking into account the risk hedging costs for decision-making in export business with Belarus. The risks are covered by export credit guarantees issued by the Federal Republic of Germany. Export financing is provided through supplier credits for the purposes of competitive differentiation. All instruments examined were used to refinance supplier credits. Such decision methods as cost comparison and SWOT analysis are used to determine the appropriate instrument. After the SWOT analysis, risks, opportunities and such important criteria as security, liquidity inflow, creditworthiness requirements and administrative expenses are assessed. The cost comparison carried out identifies the acceptance credit as the most favourable instrument for short-term export financing. The most favourable instrument for medium-term export financing is equity financing through supplier credits. The use of the SWOT analysis reduces the probability of a risk or opportunity miscalculation and thus of a wrong decision.

list of abbreviations

Abbildung in dieser Leseprobe nicht enthalten

list of figures

Fig. 1: The basic structure of supplier credit

Fig. 2: Process of the acceptance credit for refinancing a payment target

Fig. 3: Export factoring

Fig. 4: Forfaiting. basic structure

Fig. 5: Fees for the Hermes cover. Short-term export financing

Fig. 6: Fee calculation. Short-term export financing

Fig. 7: Criteria evaluation

Fig. 8: Evaluation matrix. Short-term export financing. risks

Fig. 9: Evaluation matrix. Short-term export financing. chances

Fig. 10: Fee calculation. Medium-term export financing

Fig. 11: Fees for the Hermes cover. Medium-term export financing

Fig. 12: Evaluation of criteria

Fig. 13: Evaluation matrix. Medium-term export financing. risks

Fig. 14: Evaluation matrix. Medium-term export financing. chances

Fig. 15: Exports from Germany to Belarus

Fig. 16: Ranking of the trading partners in the foreign trade of the Federal Republic of Germany

Fig. 17: Information from AKA mbH

table directory

Table 1: Total costs. overdraft facility

Table 2: Total costs. acceptance credit

Table 3: Costs. export factoring

Table 4: Total costs. export factoring

Table 5: Comparison of short-term export financing costs

Table 6: SWOT analysis. overdraft facility

Table 7: SWOT analysis. acceptance credit

Table 8: SWOT analysis. export factoring

Table 9: Explanation. Short-term export financing. risks

Table 10: Explanation. Short-term export financing. chances

Table 11: Shareholders' equity. The interest costs

Table 12: Shareholders' equity. Interest costs after discounting

Table 13: Shareholders' equity. total cost

Table 14: Liabilities. The interest costs

Table 15: Liabilities. Interest costs after discounting

Table 16: Total costs. borrowed capital

Table 17: Borrowed Capital 1. Interest Costs

Table 18: Borrowings 1. Interest costs after discounting

Table 19: Total costs. Liabilities

Table 20: Forfaiting costs

Table 21: Comparison of medium-term export financing costs

Table 22: SWOT analysis. equity financing

Table 23: SWOT analysis. debt financing

Table 24: SWOT analysis. Debt financing

Table 25: SWOT analysis. forfeiting

Table 26: Explanation. Medium-term export financing. risks

Table 27: Explanation. Medium-term export financing. chances

Table 28 : Overdraft facility

1 Introductory remarks

1.1 Initial situation and problems

The analysis of total German exports shows an upward trend. In 2015, exports increased by 6.5 % compared to the previous year. With a surplus of 1,196,378,000 euros, the previous record from the previous year was clearly exceeded.1 However, the upward trend cannot be applied evenly to export values directly to individual countries. According to the Baden-Württemberg State Statistical Office, goods worth 2,285,800 euros were exported to Belarus in 2013, in 2014 the export value was significantly lower and in 2015 it fell to 1,270,900 euros2. This is mainly due to the economic and political situation in Belarus.

No export is without risk. According to the Organisation for Economic Co-operation and Development (OECD), Belarus is one of the countries with the highest risk rating.3 However, the risk alone is no reason to forgo cooperation with this country altogether, because Belarus ranks 63rd out of 239 countries in the list of trading partners in the export business with the Federal Republic of Germany in 20154 and because Germany, as a country heavily dependent on exports, should therefore take advantage of these opportunities.5

This work places particular emphasis on political and economic del credere risks. In international business, it is very important to take the protection of the default risk into account when negotiating payment terms, because the retention of title may not be enforceable and at the same time legal prosecution of the claim can become very complicated and relatively expensive6. This leads to the first question which is examined in this paper:

1. How and at what cost can the German exporter avoid del credere risks in the export business?

The exporter has the possibility to secure himself by the terms of payment in the contract by agreeing a letter of credit or demanding advance payment from the importer. These terms of payment entail risks for the importer. Of course the prepayment is the most unfavourable alternative for him.

The letter of credit plays a very important role in securing payments in foreign trade transactions and can even support the further financing of foreign trade transactions, but it carries a risk for the buyer because the importer does not simultaneously receive the goods and the documents for the goods. And if the goods are not delivered as agreed in the contract in terms of type, quantity or quality, he shall bear any losses alone, he shall not be able to resell the goods and as a result shall not receive any further financing from his bank.7

In order to avoid the risks, the importer can refuse the order. Therefore, when exporting to financially unstable countries, it is important to consider whether the importer is able to pay the full amount immediately, or whether it is better to look for a suitable financing instrument that is optimal for both sides.

Janus H. points out: "The Achilles' heel of exports in the economic crisis is, however, apart from the general decline in demand, not so much risk assumption as financing8. In Germany, the economic crisis is long gone, but in an importing country with a difficult economic situation such as Belarus, capital shortages can occur and, as a result, financing problems.

It is also very important to choose the right form of financing for medium to long-term export financing, because it is precisely here that the wrong decision can have a negative impact on the company. If the decision is made solely on the basis of costs, the business result may be more cost-effective, but it is doubtful whether it corresponds to the strategic corporate objectives and takes all opportunities and risks into account. This gives rise to the second question of this work:

2. What opportunities and risks are associated with the respective financing instrument or form of financing?

1.2 Goal of the work and personal motivation

I started to work on the chosen topic when I became aware of the fact that German exporters and Belarusian importers have very different, sometimes even contradictory interests in the question of financing exports.9 Therefore, the aim of this thesis is to examine the question of how to determine the appropriate short-term instrument and the appropriate medium-term form of export financing, taking into account the costs of risk protection in the export business with Belarus.

At the same time, my interest lies in the economic development of my home country through trade and its risk-protected, optimal financing.

1.3 Delimitation of the topic

This work will address the possibilities of financing and eliminating or reducing economic and political del credere risks in exports to Belarus. For this, the exporter must know which instrument, which form of financing and which export credit insurance are best suited for the two business partners.

The bachelor thesis examines all possible alternatives to short-term export financing for these export relationships. The data originates from the German Chamber of Commerce Abroad (AHK) for Belarus: two variants of bank financing, current account and acceptance credit, as well as financing via the factor.10 Export factoring is an alternative to bank financing, so this possibility will also be examined within the scope of this work.

The letter of credit and collection of documents are not examined in the context of this work, although they guarantee a high level of payment security in foreign trade business. Although the letter of credit may be related to the granting of a loan, letters of credit and debt collection are not independent financing instruments, but terms of payment11. The terms of payment are concerned with how the exported goods, services or goods are to be paid for. Export finance is about how the funds for financing are to be obtained and whether the exporter or the importer is financing foreign business.12

Supplier credit and its forms of financing are used as instruments of medium-term export financing. The importer is given the option not to pay the invoice amount at the time the service is rendered but at a later point in time.

The opposite of the supplier credit would be the buyer credit. Although the buyer credit may be a more favourable option for the importer, it is not examined within the scope of this work, because the exporter receives the full amount from the bank with the buyer credit and the transaction is terminated for him without risk13. The whole risk is transferred to the importer. But this should not be allowed if you want to differentiate yourself from the competition14 and plan to develop a long-term partnership abroad15. As competition becomes tougher, exporters are more likely to be forced to offer the importer a suitable form of financing in16 order to rule out default risks in the future. Therefore the different forms of financing of the supplier credit are analyzed in this Bachelor thesis. Project financing or export leasing are not considered in the context of this work.

As Euler Hermes AG, the best-known credit insurer, covers17 both economic and political risks, the cost of this service was calculated. Private credit insurance is only suitable for covering economic risks18 and is not mentioned in this paper because the probability of political risks occurring in exports to Belarus is quite high.

1.4 Procedure

In this bachelor thesis the possible variants of short and medium-term export financing are described, the costs for financing with the selected instruments and credit insurance are presented and finally the orientation is justified with the selection of the suitable instrument. This work is aimed at German companies wishing to export to Belarus. Therefore, the following procedure has been established:

1. Definition of objectives and questions.
2. Selection of short and medium term export financing instruments for analysis.
3. Calculation of the fees for the Hermes cover of short-term loans.
4. Calculation of credit costs and Hermes cover costs for the overdraft facility.
5. Calculation of credit costs and Hermes cover costs for the acceptance credit.
6. Calculation of export factoring costs.
7. Comparison of the results obtained.
8. Execution of the SWOT analysis of the selected financing instruments.
9. Evaluation of risks, opportunities and decisive criteria of the instruments.
10. Calculation of credit costs for medium-term export financing using the various forms of supplier credit financing as examples.
11. Comparison of the results obtained.
12. Execution of the SWOT analysis of the selected forms of financing.
13. Evaluation of risks, opportunities and decisive criteria of the forms of financing.

2 Theoretical basics

2.1 Methodology of work

The study focuses on short and medium-term export financing instruments. The first step was to define the financial instruments for the analysis. All possible instruments of short-term export financing were identified for analysis. In the selection of medium-term financing instruments, risk assumption has played a predominant role.

Two decision methods are used to achieve the goal of the bachelor thesis. First, a cost comparison of the instruments and forms of short-term and medium-term export financing will be carried out. The fees for the Hermes cover are calculated using an Excel tool which is available on the website of the state credit insurance.

The strengths, weaknesses, opportunities and risks of each instrument and form of financing are then identified. The SWOT analysis is used as a decision-making method for this purpose.

The SWOT analysis is an instrument of strategic management which allows the development possibilities and conclusions for future action to be derived from the identified states. The analysis consists of two phases: internal and external analysis. The internal analysis reveals the strengths and weaknesses of individual financing instruments and forms of financing. The external analysis serves to identify the opportunities and risks that may arise from the strengths and weaknesses.19

The information received is presented in a matrix. Before the SWOT analysis is carried out, the company's goal must be defined in order to correctly assess its strengths and weaknesses. Since the present paper lacks a practical reference to the goals and strategy of the company, the opportunities and risks are presented as examples. Finally, the assessment of risks, opportunities and such criteria as security, inflow of liquidity, creditworthiness and administrative expenses that are decisive for the selection are carried out.

2.2 Definition of important terms

Foreign trade finance is subdivided into export and export finance and import finance. The term export financing refers to the procurement of funds for the period between the manufacture or purchase of the goods or services to be exported and the expiry of the payment period granted to the importer20. The forms of export financing are export prefinancing, export financing and export follow-up financing. The production phase is ensured by pre-financing, the provision of the goods including transport and unloading by export financing. The21 risk disposition and refinancing of the export credit are components of the export follow-up financing.22

German exporters have instruments with different maturities at their disposal for export financing. Short-term export financing covers a period of up to 12 months,23 medium-term instruments run for up to 5 years and long-term export financing provides loans with a term of more than 5 years24. The short-term financing instruments examined in this paper are current account credit, acceptance credit and export factoring. A current account credit is a short-term book credit with a fixed maximum amount25. The acceptance credit and export factoring will be explained in detail later.

The term supplier credit is used in specialist literature to describe the exporter's short-term credit to his customer; some authors also call it trade credit or supplier credit. Büter defines the supplier credit as credit that serves to refinance the payment period granted by the exporter to his customer and consists of two credit agreement relationships. On the one hand the exporter grants a trade or supplier credit to his customer, on the other hand he receives a supplier or exporter credit from the bank to refinance his foreign business26. Stocker refers to the latter credit relationship as a producer credit.27 Both the short-term and the medium-term export business are financed by supplier credits, which are described in this paper.

The financial instruments examined are used to refinance the payment target granted. The exporter usually refinances at a bank with or without export credit insurance28. Refinancing refers to the procurement of funds in the lending business in order to be able to grant one's own loans to one's own customers.29 Figure 1 shows the basic structure of a supplier credit with credit insurance.

Abbildung in dieser Leseprobe nicht enthalten

Fig. 1: The basic structure of supplier credit

Source: Own presentation based on Jahrmann, F. U. (2013), p. 177

Economic and political del credere risks are increasingly occurring in the export business. Economic del credere risks are also referred to as buyer risks, which is the risk that the importer will not meet its payment obligations. are manifestations:

- default of payment
- unwillingness to pay
- Insolvency of the importer.30

Political del credere risks are defined as non-payment by the customer for political reasons. They are also called country risks. This is the case when currency exchange is restricted because a country does not have enough foreign exchange. The31 del credere risk can be covered by bank guarantees, especially in the case of longer credit periods in export business. The risk of non-payment due to insolvency, unwillingness to pay or due to a guarantor's long delay in payment is defined as guarantor del credere risk. It is advisable to find out how the credit insurer determines the guarantor del credere risk if he assumes the entire risk. If the export claim is transferred to a forfaiting or factoring company, certain conditions regarding the type and scope of collateral must be fulfilled32. (See chapters 2.5 and 2.6).

Export credit insurers are referred to internationally as Export Credit Agencies (ECAs). Such special financing institutions as Ausfuhrkreditgesellschaft mbH (AKA) and Kreditgesellschaft für Wiederaufbau (KfW) only finance secured loans33. German foreign trade is promoted by export credit guarantees of the Federal Government, the so-called Hermes Cover as an export guarantee of the Federal Republic of Germany. It is available to German exporters and German banks and serves to hedge the political and economic risks associated with export transactions.34

In export credit insurance, the rules of two international institutions - the Organisation for Economic Co-operation and Development (OECD) and the Berne Union (BU), the world's largest alliance of international export credit and investment insurers, must be observed. Within the framework of the OECD Consensus, the terms of government-sponsored export credits with a term of at least two years are regulated in order to limit distortions of competition between countries35. State risk coverage is based on the principle of subsidiarity, i.e. Euler Hermes only insures risks which are particularly in need of insurance and which cannot be assumed by private insurance companies36. Medium and long-term loans are disbursed on a pro rata basis. This means that the payment is based on the payment dates agreed in the delivery and service contract.37

The following terms should be considered before performing calculations: Euro Interbank Offered Rate (EURIBOR), London Interbank Offered Rate (LIBOR). EURIBOR is a common reference rate for the countries participating in the European Economic and Monetary Union (EMU). An information provider receives letter rates for different maturities from certain commercial banks in the euro area, on the basis of which an average rate is calculated and published.38 LIBOR refers to the reference interest rate in international interbank business. The LIBOR interest rates are the interest rates of the selected commercial banks in London.39

2.3 Euromarket financing

The Euromarket offers the possibility of financing export transactions if the offer price is fixed in a currency other than the Euro. The Euromarket represents international financial markets on which deposit and credit transactions in currencies other than their currency areas are traded. The currencies are not controlled by a central bank. Countries, banks, international institutions, large companies with an impeccable credit rating are the market participants here. Medium-sized companies can also borrow on the Euromarket through their commercial banks. The Euromarkets offer the refinancing of foreign trade transactions under favourable conditions. They are characterised by the free formation of interest through supply and demand.

Euro loans are gaining in importance in the refinancing of foreign trade transactions. Mediation takes place via commercial banks. A minimum volume of 100,000 euros is required when taking out loans. The loans are granted at relatively low interest rates. The credit costs consist of the interbank interest rate and a brokerage fee for the Eurobank as well as the commercial bank.40

2.4 acceptance credit

Acceptance is any form of credit transaction in which the bank makes its acceptance available to the customer or another bank, usually a foreign bank. The acceptances represent either a special form of securitisation of a loan, where the claim can be redeemed easily and quickly, or a refinancing instrument of the bank. The credit accepted by a bank serves the borrower as a means of payment or fundraising.41 The lending business is legally a granting of loans pursuant to Sections 607 et seq. of the German Commercial Code (HGB). BGB, if the bank concerned discounts the bill of exchange itself, or an agency in accordance with § 675 BGB42. In the classic form of acceptance credit, the importer issues a bill of exchange and the bank then grants an acceptance credit. The classic form of acceptance credit in foreign trade financing is handled in the following way:

1. The exporter and importer conclude the sales contract.
2. The importer, since he has no means to pay for the delivery/service, contacts his bank to apply for an acceptance credit.
3. The importer draws a bill to the bank.
4. The bank accepts the bill.
5. The delivery takes place against endorsed bank acceptance.43

The exporter has the option of passing on the bank acceptance to the suppliers, submitting it to the bank 2 days before expiration or submitting it for discount. The bank is obliged to pay the amount stated in the bill of exchange.44

The bill of exchange is a security that is subject to the strict formal requirements of the Bill of Exchange Act. A bill of exchange receivable is null and void without presentation of the document representing it. A bill receivable is non-accessory, i.e. it is not linked to a principal transaction. The bill of exchange can be used as a means of borrowing, security and payment.45

The change claims are quickly enforceable46. An acceptance commission in the amount of 1.5 to 2.5% p.a. of the nominal amount of the bill of exchange shall be paid for the issue of the acceptance credit. In the case of discounting, interest is charged to the borrower.47

There are many different types of export financing and protection with an acceptance credit. The classical form of acceptance credit described above is not presented in this paper. Instead, the most common form of export business with Belarus is a variation on the classical acceptance credit. It is used when the importer is not prepared to accept a bill of exchange, but the exporter needs refinancing to grant a payment period48. Then the exporter is the bill issuer. The bill of exchange is accepted and discounted by his house bank, thus credit lending and money lending are given at the same time. In49 this way, the exporter can obtain the funds he can use to grant the payment term. The process of this form of acceptance credit is described in Figure 2.

Abbildung in dieser Leseprobe nicht enthalten

Fig. 2: Process of the acceptance credit for refinancing a payment target

Source: Own presentation based on Büter, C. (2013), p.330

It should be noted that acceptance credits are becoming less important overall because bills of exchange cannot be used for refinancing via the European Central Bank (ECB50 ). For this purpose, a special form of acceptance credit, the reimbursement credit, is used more frequently in export business. This loan is not examined in the context of this study because, according to the AHK Belarus, only the acceptance credit was used in the export business specifically with Belarus, but not the reimbursement credit.

2.5 Export factoring

Export factoring means the ongoing sale of short-term receivables from export transactions to a specialized financial institution.51 Short-term here means a term of up to 180 days.52 The contractual assignment of a claim from a creditor to a factoring provider is called assignment.53

The factoring company places certain requirements on exporters in order to avoid the purchase of "bad risks". Only export receivables with a certain minimum volume per order are purchased. The annual turnover of the connection customers must also reach a certain level in order to conclude a contract with the factoring company. The claims must be free of rights of third parties, the amount of which must be fixed and best derive from transactions with regular customers. This minimizes the audit costs of the debtors and the total export factoring costs.54

There are different forms of export factoring. Depending on whether the importer is informed about factoring and the associated assignment or not, a distinction is made between open and silent factoring.55 With genuine factoring, the factor is liable for the risks and receivables assumed without recourse. The exporter is liable only for the legal status of the claim. Genuine export factoring fulfils financing, service and credit protection functions. The financing function consists in the fact that the factor buys the current receivable and prepays the exporter 70 - 90 % of the amount of the receivable less factoring costs. The56 factoring company pays the exporter the blocking amount of 10 - 20 % only after payment by the importer or after a certain blocking period.57

The service function is expressed by the fact that the exporter can transfer the accounts receivable accounting58, dunning, collection and prosecution to the factor59. The credit security function or del credere function is fulfilled by transferring the economic del credere risks to the factor. Political risks are excluded. Only those receivables are bought which are believed not to present a political risk.

In the case of non-genuine factoring, the seller of the receivables bears the economic del credere risks himself. The factoring company must know exactly whether the export receivables to be sold actually exist, but the creditworthiness of the exporter is also checked.60

The factoring costs consist of interest and fees depending on the period and the credit rating of the importer. After checking the creditworthiness of the foreign importers, the factor can set a limit per customer. Interest is to be paid for the fulfilment of the financing function. The factoring fees are calculated depending on the export turnover of the company's customers. The factoring fees consist of fees for the audit of the debtors and fees for the fulfilment of the service and credit security function.61

Export factoring differs from classic factoring in that it is a two-factor system. The export factor buys the receivable and performs the functions described above. The factor in the debtor country as correspondence factor or import factor is responsible for the payment of the claim, i.e. he constantly checks the creditworthiness of the customer. As a rule, the correspondence factor is better informed about the legal peculiarities of the state, payment methods and enforcement options and can contact the debtor more quickly.62 Figure 3 shows how export factoring is organized.

Abbildung in dieser Leseprobe nicht enthalten

Fig. 3: Export factoring

Source: Büter, C. (2013), p. 334

2.6 Forfaiting

Another form of financing for supplier credits is forfaiting. This refers to the non-recourse purchase of medium to long-term individual receivables in foreign trade. Non-recourse purchase means that the credit institution bears all economic and political risks alone after conclusion of the contract. In63 order to make the decision for or against a specific credit institution, the exporter procures a firm offer from a financing company in which it undertakes to forfait on the above terms.64 As security, the forfaiting company requires the exporter that his foreign customer issues a promissory note with a blank endorsement. The promissory note, also called promissory note, because the exhibitor and the debtor are one person.65 The promissory note is a promise by the debtor to pay the person named in the order note at a certain point in time.66 Endorsement is a written declaration of transfer, usually attached to the back of the deed.67 Blank endorsement is an endorsement on the bill of exchange or check with the signature of the holder, the recipient is not named. It may thus be transferred in the same way as a bearer instrument.68

The promissory note must be submitted to the exporter's house bank. Forfaiting bills whose debtors have a good credit rating and are internationally known are purchased on the financial market, otherwise a bank guarantee, i.e. the guarantee of an internationally recognised bank, is usually required. Only bills of exchange issued in freely convertible currency are forfaited, other currencies are traded only under special conditions69. The claims must be abstract and can also exist as a letter of credit or book claim.70 The forfaiting process is shown in Figure 4.

Abbildung in dieser Leseprobe nicht enthalten

Fig. 4: Forfaiting. basic structure

Source: Own presentation based on Thommen, J.-P./Achleitner, A.-K. (2009), p. 642

For the assumption of risk and fulfilment of the financing function, the forfaiting costs are charged by the export company as a discount. The level of the discount rate depends on the country risk, the maturity of the bill, the collateral, the currency and the intensity of supply and demand. Country risk is assessed on the basis of the domestic, external and political situation. The term can be up to ten years. Countries with higher risk have lower maximum maturities.71 The discount rate is usually set as a fixed interest rate for the entire term of the receivable. The interest rate is composed of the LIBOR and a risk premium.72

Interest is calculated using the German interest method with 30/360 days or the Euro interest method with 365/360 days. Discounting is based on 5 days of respect. This is a surcharge for the settlement of payment transactions if the receivable is not paid at the forfaiter's location.73

The annual percentage rate of charge indicates the percentage of total annual borrowing costs. The credit agreement is null and void without indication of the annual percentage rate of charge.74 The effective interest rate is called yield and is calculated according to the following formula:

Abbildung in dieser Leseprobe nicht enthalten

Kn = End value (bill total)

Ko = Present value (disbursement)

n = Receivables maturity

The formula for the average runtime:75

Abbildung in dieser Leseprobe nicht enthalten

The commitment commission is invoiced only on the basis of the fixed offer, is up to 1 % p.a. and relates either to the sum of the purchase price instalments or to the forfaiting proceeds to be paid out.76

As a rule, the house bank will charge a brokerage commission from a forfaiter for the brokerage. In addition, the importer shall pay the guarantee commission of 1-1.5% p.a. if the issue of a bank guarantee was assumed. An additional option fee must be paid for the option of withdrawal.77

The claims from federal cover can be assigned to the forfaiting company, for which the written consent of the federal government must be obtained. The assignment of the export claim with Hermes cover facilitates the search for a forfaiter, because in some cases it is not easy to find a forfaiting company that is willing to assume all risks. It is also possible to receive a lower risk premium. However, forfaiting companies do not only purchase export receivables covered by Hermes cover in comparison to AKA.78

3 State export credit insurance

According to the Federal Statistical Office, the export ratio in Germany in 2015 was 39.5 %. The German economy is export-oriented and depends on demand abroad.79 Since not every country is in a position to pay for the export goods immediately or in the shortest possible time, the export promotion of the Federal Republic of Germany plays a particularly important role for the German economy. On the one hand, it promotes jobs and economic development at home, on the other it secures existing business relations or creates new ones by keeping demand abroad at the same or even higher level.80

The Federal Republic of Germany supports the development of the international activities of German exporters through its state export credit insurance. The Export Credit Guarantees, also known as Hermes Cover, serve to cover the economic and political risks associated with the export of goods and services81. Euler-Hermes Kreditversicherung AG and PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft (PwC) are mandataries of the Federal Government. Its tasks include checking the creditworthiness of the foreign importer or borrower, the political situation in the buyer's country, advising exporters and credit institutions, handling cover and paying compensation if the buyer fails to meet his obligations under the contract and the delivered goods remain unpaid82. The following political risks are hedged:

1. Loss of receivables due to legislative or official measures, warlike events, riots or revolutions abroad (so-called general political loss event),
2. Claims arising from unenforceable conversion and transfer of amounts paid by the debtor in local currency by restrictions on intergovernmental payments (the most frequent claim in the past),
3. Loss of claims due to non-performance of contract for political reasons,
4. Loss of goods before transfer of risk due to political circumstances (goods have not arrived at the buyer e.g. because of confiscation, destruction, etc.).

Hermes Cover covers the following economic risks:

1. Bad debt losses in the event of non-payment (protracted default)
2. Loss of receivables due to bankruptcy, official or extra-official settlement, unsuccessful execution and suspension of payments.83

In addition to hedging risks, Hermes also grants risk provisions. Decisions on the granting of cover for receivables are taken in the Interministerial Committee (IMA) by the Federal Ministry of Economics and Energy. This also requires the approval of the Federal Ministry of Finance, the Federal Foreign Office and the Federal Ministry for Economic Cooperation and Development in the IMC. The representatives of Ausfuhrkreditgesellschaft mbH/ export credit company with limited liability (AKA) may be invited to participate in the IMA. AKA supports the export industry by offering financing for export transactions.84

It is important to note that the Federal Government is not obliged to insure an export transaction and may refuse cover even without a declaration. Exports with too high a risk can be limited in their scope (share of deliveries or services). Euler Hermes does not process export covers that can be covered by private credit insurance.

The application for the Hermes cover should be submitted before the conclusion of the export and credit agreement, i.e. before the risk materialises. It is very important to communicate any information from the foreign business partner to the mandataries of the Confederation in order to facilitate and speed up the processing of the application.85

3.1 OECD and Berne Union regulations

Certain regulations must be observed when applying for Hermes cover. These regulations are prescribed by two international institutions: the OECD and the Berne Union.

The OECD analyses and develops the social and economic policies of the 34 member countries and supports democracy and a market economy.86 The OECD Consensus regulates the following conditions for export credits with a term of at least two years, which are supported by the state:

1- down payments
2- Repayment periods and modalities
3- Minimum interest rates and charges

The consensus stipulates, for example, that if the credit period is more than 360 days, a down payment or interim payment of at least 15% of the order value must be made up to the starting point (i.e. the beginning of the credit period). Repayments are made in equal half-yearly instalments. The credit period usually starts pro rata, and the first repayment must be made no later than 6 months thereafter. The interest is to be calculated and paid degressively on the respective remaining amount every 6 months. If the payment is not made in semi-annual installments, a normalization of the remuneration is necessary. The maximum repayment term is calculated depending on the country category and per capita income. The minimum interest rates are also regulated within the framework of the OECD Consensus.87

From 1 September 2011, the OECD premium system will apply in Germany to individual covers, credit line covers and revolving covers in accordance with the OECD-wide country and buyer categories. The processing fees and fees must be paid as early as the application stage. Depending on the type of cover, the amount of the fees depends on the order value, loan amount, cost price or guarantee amount. The application fee is calculated once during the application process, for the next installment you have to pay a renewal fee. The application fee is due upon receipt of the invoice, irrespective of whether the cover is granted or not. If cover is provided, an issuing fee must be paid.

The amount of the premium is determined by the amount to be covered without interest, by the risk term, country category, buyer category and the availability of the collateral. Depending on the form of cover, the costs of economic and political risks are taken into account differently.

Information on the default probabilities of internationally recognised external rating agencies is used as the basis for determining and classifying buyer categories. There are a total of eight country categories, of which only seven are taken into account for the calculation of the charge (categories 1 to 7) and no charge is taken for country category 0. The risk of country category 1 is rated best (countries with very low risks), while country category 7 is rated worst (strongly increased risks).

The buyer category is an indicator of the buyer's creditworthiness and status (private or government). The number of buyer categories varies within each country category. In total there are 9 categories: SOV; SOV- are government debtors. The SOV category includes public debtors such as the central bank or the Ministry of Finance, in which case only the political risk is taken into account. Other government debtors are referred to under the SOV- category, so the fees are higher than under the SOV- category. SOV+ are private buyers with better external ratings than SOV of the buyer country, CC0 - CC5 are remaining private buyers. The category CC0 is rated with the lowest risk, CC5 with the highest risk.

All securities given in the export transaction must be shown, because only then is a discount on the buyer risk possible, which can greatly reduce the amount of the remuneration.88

The Berne Union (BU) is also known as the International Union of Credit and Investment Insurers. It is the largest association of international export credit and investment insurers in the world. The task of the member organisations is to promote the insurance of export credits and foreign investments. The maximum repayment term and also the rules for different product categories are prescribed by the Union.89

3.2 Forms of coverage by the waistband

The state export credit insurance offers numerous options for risk protection90. The type of cover chosen depends on who requests the risk cover, whether it is a single transaction or several transactions, whether buyers come from one country or from different countries. Depending on who is requesting the cover, bank or exporter, supplier credit cover and buyer credit cover are most commonly used. In the first form, the exporter himself secures his export transaction, and in the second, the bank applies for risk cover. Within the scope of this work, the form of cover of supplier credit cover is relevant. It secures receivables from a single export transaction. Revolving supplier credit covers, export blanket guarantee and export blanket guarantee light are suitable for collective covers;91 they are also briefly mentioned in this paper. Only the manufacturing risk cover is also described, as exporters can use this form of cover in addition to the supplier credit cover to cover the cost price of an export transaction.92 Other forms of state export credit insurance are not explained because they are not directly related to the topic. The supplier credit cover is illuminated with all possible variants.

3.2.1 supplier credit cover

Supplier credit cover secures the German exporter's claim for money from a single cross-border supply and service transaction. German export companies thus have the opportunity to cover their business with both short-term and medium- to long-term payment terms. This form of cover enables the delivery of consumer goods, raw materials, spare parts for transactions with short-term credit periods as well as capital goods and fixed assets with a term of more than 24 months to be covered. The excess is generally 5% for political risks and 15% for economic risks.

It covers the value of the export contract as well as the interest on the loan and possible ancillary financing costs until the claim mentioned in the guarantee declaration is paid. The Federal Government shall be liable from the time the goods are dispatched if delivery is involved or from the start of performance if a service has been agreed in the contract. The cover may only be assigned to forfaiting companies or a credit institution with the written consent of the Federal Government.93

[...]


1 Federal Statistical Office (2016a), p. 25

2 See Baden - Württemberg State Statistical Office (2016), http://www.statistik.badenwuerttemberg.de/ → 6&B=1

3 Cf. o. V. (2016), S. 1

4 Cf. Federal Statistical Office (2016b), p. 3

5 Federal Statistical Office (2015), pp. 6 - 9

6 Cf. Pommert, B. (2015), p. 245

7 Cf. Ehrlich, D./ Zahn, J. C. D. / Haas, G.(2010), p. 39 - 41

8 Janus, H. (2010), p. 340

9 Cf. Guserl, R. / Pernsteiner, H. (2015), p. 290

10 Cf. AHK Belarus (2012), p. 5 - 6

11 Cf. Lenger, T./Novak, V. (2013), p. 231 - 243

12 Cf. Büter, C. (2013), p. 323

13 Cf. Pommert, B. (2015), p. 250

14 Cf. Pommert, B. (2015), p. 242

15 Cf. Beck, T. R. (2014), pp. 7-10

16 Cf. Royer, I. (2013), p. 262

17 See AGA Portal (2016), http://www.agaportal.de/pages/portal/index.html

18 Cf. Büter, C. (2013), p. 401

19 See Schawel, C. / Billing, F. (2014), S. 246 – 248

20 Cf. Höfferer, M./Grausberg, P (2013), p. 304

21 Cf. Gelbrich, K. / Müller, p. (2012), p. 413

22 Cf. Jahrmann, F. U. (2007), p. 434

23 Cf. Waschbusch, G. (2011), p. 63

24 Cf. Büter, C. (2013), p. 325

25 See Bazan, H.-J. et. al. (2011), S. 467

26 Cf. Büter, C. (2013), p. 334

27 Cf. Stocker, K. (2013), p. 86

28 Cf. Guserl, R. / Pernsteiner, H. (2015), p. 291

29 See Deutsche Bundesbank (2016), https://www.bundesbank.de/Redaktion/DE/Glossareintraege/R/refinanzierung.html

30 Cf. Büter, C. (2013), p. 299

31 Cf. Häberle, S. G. (2002), p. 618 - 621

32 Cf. Häberle, S. G. (2002), p. 622

33 See Stocker, K. (2013), p. 93 et seq.

34 Cf. Häberle, S. G. (2002), p. 955

35 Cf. Bergen, H.-P. et. al (2009), p. 154

36 Cf. Büter, C. (2013), p. 393

37 Cf. Stocker, K. (2013), p. 86

38 See EURIBOR rates. EU (2016), http://de.euribor-rates.eu/was-ist-der-euribor.asp

39 Cf. o. V. (2016), http://www.finanzen.net/zinsen/libor/

40 Cf. Büter, C. (2013), p. 335 - 338

41 See Palyi, M./Quittner, P. (1933), p. 30.

42 See Pretsch, J./Schikorra, U./Ludwig, E. (2012), p. 155

43 See Prätsch, J. / Schikorra, U. / Ludwig, E. (2012), p. 155

44 Cf. Büter, C. (2013), p.330

45 Cf. Staroßom, H. (2012), pp. 123 - 124

46 Jahrmann, F. U. (2007), p. 498

47 See Prätsch, J. / Schikorra, U. / Ludwig, E. (2012), p. 155

48 Cf. Jahrmann, Fritz U. (2004), p. 438; AHK Belarus (2012), p. 5

49 Cf. Thommen, J.-P. / Achleitner, A.-K. (2009), p. 638

50 See Pretsch, J./Schikorra, U./Ludwig, E. (2012), p. 156

51 Cf. Büter, C. (2013), p. 332

52 Cf. Häberle, p. G. (2002), p. 928; Royer, I. (2013), p. 277

53 Cf. Thommen, J.-P. / Achleitner, A.-K. (2009), p. 640

54 Cf. Büter, C. (2013), pp. 332 - 333

55 Cf. Häberle, S. G. (2002), p. 929

56 Cf. Royer, I. (2013), p. 277; Büter, C. (2013), p. 333

57 Cf. Häberle, S. G. (2002), p. 931; Staroßom, H. (2013), p. 129

58 Cf. Beck, T. R. (2014), p. 23

59 See Prätsch, J. / Schikorra, U. / Ludwig, E. (2012), p. 200

60 Cf. Häberle, S. G. (2002), p. 931

61 Cf. Jahrmann, F. U. (2004), p. 458 - 463

62 Cf. Staroßom, H. (2013), p. 137 - 138; Becker, H. P. (2016), p. 264

63 Cf. Schlick, H. (2011), p. 235; Becker, H. P. (2016), p. 265

64 Cf. Häberle, S. G. (2002), p. 923

65 Cf. Thommen, J.-P. / Achleitner, A.-K. (2009), p. 638

66 Cf. Jahrmann, F. U. (2013), p. 199

67 Cf. o. V. (2004), S. 186

68 Cf. DTV (ed. ) (2015), p. 275

69 See Jahrmann, F. U. (2007), pp. 498 - 499; Häberle S. G. (2002), p. 920; Stocker, K. (2013), p. 100

70 Cf. Huber, E./Schäfer, H. (1995), p. 277

71 Cf. Jahrmann, F. U. (2007), p. 501

72 Cf. Häberle, S. G. (2002), p. 924

73 Cf. Jahrmann, F. U. (2007), p. 502

74 Cf. Grundmann, W. (2014), p. 332

75 Cf. Jahrmann, F. U. (2007), p. 505

76 Cf. Jahrmann, F. U. (2007), p. 502; Stocker, K. (2013), p. 101

77 Cf. Jahrmann, F. U. (2004), p. 508; Stocker, K. (2013), p. 101

78 Cf. Häberle, S. G. (2002), pp. 921 - 922

79 See Federal Statistical Office, Wiesbaden (2016), https://www.destatis.de/DE/ZahlenFakten/ → cae1#Tables

80 Cf. foreign business hedging of the Federal Republic of Germany (2016), http://www.agaportal.de/pages/portal/index.html

81 Cf. foreign business hedging of the Federal Republic of Germany (2016), http://www.agaportal.de/ → grundzuege.html

82 Cf. foreign business hedging of the Federal Republic of Germany (2016), http://www.agaportal.de/ → mandatarauftrag.html

83 Foreign business hedging of the Federal Republic of Germany (2016), http://www.agaportal.de/ → covered_risks.html

84 Cf. Höfferer, M./Grausberg, P (2013), pp. 307 - 308

85 See Ed. International Business Protection of the Federal Republic of Germany (2014b), p.4

86 See AGA portal (2016), http://www.agaportal.de/ → oecd.html

87 See Ed. International Business Hedging of the Federal Republic of Germany (2014c), p. 3 - 5

88 See Ed. International Business Hedging of the Federal Republic of Germany (2013a), pp. 2 - 11

89 See Ed. International Business Hedging of the Federal Republic of Germany (2014c), p. 3

90 See AGA Portal (2016), http://www.agaportal.de/pages/aga/produkte/uebersicht.html

91 Cf. foreign business protection of the Federal Republic of Germany (2016), http://www.agaportal.de/ → overview.html

92 See Ed. International Business Hedging of the Federal Republic of Germany (2013b), p. 2

93 See Ed. International Business Hedging of the Federal Republic of Germany (2014a), pp. 2 - 11

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Title
Analysis of short-term instruments of export financing as well as the various forms of financing via supplier credits for medium-term export financing, taking into account the risk protection costs
College
University of Applied Sciences Braunschweig / Wolfenbüttel; Salzgitter
Grade
1.3
Author
Year
2017
Pages
83
Catalog Number
V461903
ISBN (eBook)
9783668920620
ISBN (Book)
9783668920637
Language
English
Tags
refinancing the payment target granted to the importer, current account credit, acceptance credit and export factoring, forfaiting, instruments of export financing, taking into account the risk protection costs, Costs of the Hermes cover, Comparison of costs
Quote paper
Valentina Barysava (Author), 2017, Analysis of short-term instruments of export financing as well as the various forms of financing via supplier credits for medium-term export financing, taking into account the risk protection costs, Munich, GRIN Verlag, https://www.grin.com/document/461903

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