AGA Report Special
The Federal Government adopts a 5-point package of measures to further support the German export industry
Improvements to enhance liquidity, financing and refinancing – exporters and banks will benefit – “shopping line cover” provides incentives to “buy in Germany”
With effect from 1 July additional measures came into force that aim at improving the liquidity of exporters and importers, facilitating the financing of transactions and increasing the refinancing possibilities for banks.
In particular, the Federal Government adopted the following 5-point package of measures to support the German export industry (see also the fact sheet, link)
1. Improved financing possibilities for new exports
- 720 days buyer credit at special conditions (limited until 30.06.2021)
Even sound, well-managed foreign buyer companies with a functioning business model are faced with liquidity constraints in the current crisis. In order to allow well established customer relationships to be maintained, the Federal Government decided to improve the financing of Hermes-covered business at short credit terms. As of 1 July 2020 the Federal Government offers importers the 720 days buyer credit, a financing instrument at special conditions which eases the strain on the buyer’s liquidity. The credit period has a maximum length of 720 days and may be repaid in one amount at the end of the credit period (bullet payment). Interim payments are dispensed with. The down payment, which has to be made before the risk commences, has been reduced to five percent.
- Subsequent financing of transactions based on supplier credits (limited until 30.06.2021)
Secured export business on supplier credit basis may subsequently be financed with a medium/long-term buyer credit provided that supplier credit cover exists and the policyholder can justify his financing request with developments caused by the coronavirus pandemic.
2. Introduction of “shopping line” cover (not limited in time)
With the “shopping line” cover, the Federal Government breaks new ground. It is a special form of buyer credit cover and deliberately puts the importer into the focus. It thus makes it easier for German exporters to gain access to procurement programmes of foreign buyers with a high credit rating.
And this is how the new type of buyer credit cover works:
The Federal Government provides cover for a credit line extended to a foreign buyer. The foreign buyer can then order goods and services from German exporters. The bank pools these transactions afterwards in one credit tranche with a uniform repayment profile. This credit tranche is then recorded against the Hermes-covered credit line.
“Shopping line” cover offers a number of advantages to buyers of German goods: Already at a very early stage, they can get an indication as to the amount of a possible credit line. Besides, they benefit from the good financing terms that are linked with cover from the Federal Government.
In addition, the administrative burden is reduced due to the pooling of orders. This results in the placing of small orders in Germany becoming more attractive. “Buy in Germany” – this is worthwhile especially for small tickets in future thanks to “shopping line” cover. Thus, new markets will be opened up in particular for German SMEs. For the banks financing exports there are also facilitations because the documentation of the credit transaction is considerably simplified.
In order to make “shopping line” cover even more attractive, especially for existing customer relationships, transactions executed before an application for cover was filed may also be included in the cover subject to certain conditions being met (“reach back”).
3. Premium adjustments for export credit guarantees
For the provision of cover for his export transaction the policyholder pays a premium that is commensurate with the risk. The premium amount is determined by three parameters: the country risk category of the buyer country, the credit’s repayment term and the buyer’s credit rating. In order to cushion the exporter from a liquidity squeeze caused by the coronavirus pandemic, the Federal Government adopted some relief measures in connection with premium payments.
- In the event of extensions of the repayment period (limited until 30.06.2021)
In individual cases, no premium may be charged for the longer horizon of risk resulting from an extension of a credit’s repayment period which becomes necessary because of coronavirus-related developments in order to avoid a loss. This may also apply to cases where interest on credit extensions (up to a maximum of the original interest rate) is included in the cover.
- In connection with premium maturities (limited until 30.06.2021)
Prior to the commencement of risk: If the delivery/service/manufacturing periods remain unchanged, the policyholder has the option, in exceptional cases, to pay the premium not until the commencement of manufacturing (instead of upon receipt of the guarantee document) or, in the event of big-ticket transactions, 100 percent of the premium not until the commencement of risk (instead of 25 percent already when the guarantee document is handed over).
In the event that the delivery/service/manufacturing periods are postponed by more than three months, it is possible to base the due date for the payment of the premium on this changed commencement of risk way of exception.
If, in rare cases, it should be necessary to postpone the due date for the payment of the premium until after the commencement of risk, this may also be possible; however, in particular budgetary and legal provisions and the OECD Consensus have to observed when looking into the specific case.
- In connection with Wholeturnover Policies (limited until 30.06.2021)
For the tried and tested Wholeturnover Policies of the Federal Republic of Germany (APG) the premium rate for a new policy year is calculated on the basis of the loss experience, among other things. In order to mitigate premium increases caused by the effects coronavirus pandemic, the loss-related standard premium surcharge is automatically reduced from 10% to 5% in future for coronavirus-related claims becoming due for payment between 01.03.2020 and 30.06.2021.
4. Improved options for refinancing for banks providing export financing
- Introduction of a new type of the Securitisation Guarantee for refinancing through German Pfandbriefbanken (not limited in time)
For the refinancing of Hermes-covered export credits through German Pfandbriefbanken, the Federal Government introduced an additional type of the Securitisation Guarantee. This enables non-Pfandbrief banks to obtain refinancing from Pfandbriefbanken under a guarantee from the Federal Government subject to certain condition being met and thus improves the possibilities for export finance.
- KfW refinancing programme
The existing refinancing programme of the KfW for state-supported export credits is limited in time until the end of the year. The Federal Government is already discussing with the European Commission how the programme can be extended and its terms and conditions adapted.
5. Other technical improvements to the export credit guarantees
- Applicability of the preconditions for disbursements of buyer credits also to portfolio business (not limited in time)
At the end of last year, the precondition for disbursements of buyer credits were simplified. For example, in connection with big-ticket projects the requirement that the exporter must prove the delivery and the bank must check that proof for plausibility may be limited, upon request, to such supplies and services that were recognized in advance as essential. Providing evidence that the required down-payment was made by the foreign buyer or, in course of a reimbursement procedure, the purchase price was paid by the foreign buyer has also been simplified.
Previously, the modified preconditions for disbursement applied exclusively to newly granted buyer credit guarantees. Now, as a rule, they also apply to portfolio business. This is an important contribution towards enabling banks to disburse covered buyer credits even faster in future.
- Right to opt for a lump sum indemnification of non-performing loans (not limited in time)
The Capital Requirements Regulation stipulates equity requirements for non-performing loans. In order to counter any negative effects on Hermes-covered finance, the Federal Government introduced the option of a lump sum indemnification of non-performing loans. The bank receives, on request, the indemnification in full (subject to a technical limit). This reduces the strain on the banks equity.
- The right to opt for a lump sum indemnification can be flexibly exercised from the date when the first claim for indemnification is filed until the indemnification procedure is completed.
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Euler Hermes Aktiengesellschaft