Export Finance – Support for exporters and a strategy for growth – 04/12/12

 Tuesday 4th December, 4-6pm

Paul Croucher, UK Export Finance
Gabriel Buck, Barclays
Dr. Adam Marshall, British Chambers of Commerce

Paul Croucher – UK Export Finance

Paul introduced the work of UK Export Finance (UKEF), that in 2012 they have supported nearly 40 SMEs in their ambitions to export their trade abroad, and have helped to complete contracts worth £250 million. He also introduced the two principle schemes UKEF are offering;

  • Credit Insurance. UKEF probes a gap in the market by offering single market credit insurance. This has been promoted mainly through insurance brokers. Feedback from the market says that beyond countries that are difficult to get insurance in, there is not enough single market cover, for example, in Europe. In UKEF’s case, they are only allowed to cover none OECD countries.
  • Trade Finance. UKEF also provides a provision of support for performance and tender bonds, when a company cannot get credit from their bank due to their credit histories. In these cases, UKEF share the risk with the bank. Similarly, a Working Capital Scheme is offered which aims to help exporters win contracts which are outside of the company’s capacity, but could transform the business. Again, in these cases UKEF will share the risk with the bank.
  • Other projects that UKEF have initiated include appointing of 12 Regional Export Finance Advisors who coordinate with UKTI and can advise business on financial structuring and sources of financel; Appointment of a Head of Marketing to spearhead a new campaign to raise awareness of services; The streamlining of the application process (this is the main objective going into 2013)

Gabriel Buck – Barclays

Gabriel attended the APPG as a banker with 30 years experience (20 in export finance), a representative of the British Bankers Association, and as head of Global Trade at Barclays. He explained his team is responsible for finance big ticket, cross border trade.

  • Barclays completed 141,000 transactions last year, with billions of sterling in that tradebook coming from UK SMEs. Having said this, doesn’t want to present exporting, or export finance as a panacea; neither banks nor taxpayers happily accept losses, and companies with bad credit histories will struggle to find finance.
  • There has been a shift in the way trade finance is done. In the past, all trade finance was dictated and mandated by the supplier, and buyers wouldn’t shop internationally for the best deal. Now they have a much greater say in whom they deal with. Suppliers need to understand the needs of their buyers, as the latter are now driving the majority of deals. The focus of trading now must be on the relationship between buyer and supplier. You need good trade financiers who know the market, the buyer, and the local environment. Barclays has 250 trade financiers in its UK HQ, and a similar number distributed globally.
  • Other countries provide increasingly competitive landscapes which the UK must work to keep up with. Whilst UKEF’s political and commercial guarantees are good, the fact that the UK government doesn’t have strong funding mechanisms sets us back. With today’s buyers, funding determines which market they enter.

Dr Adam Marshall – British Chambers of Commerce

Adam began by describing the composition of the British Chambers of Commerce (BCC); 1/3 of the chamber are active exporters, 6-7% are recent exporters, or are planning to start soon. The chamber consists of both buyers and sellers, and both groups are concerned by the current state of trade finance and trade credit insurance.

  • SMEs are finding it incredibly difficult to export, due to regulations and constraints from Banks, the Government, and credit insurers. Many companies are struggling with generic financial problems (lack of capital, etc) before they even face the trade specific issues.
  • The BCC International Trade Survey had 8,000 business respondents and reported
    – 3% of companies used UKEF (more than wider business population, potentially due to their BCC membership)
    – 20% of exporters not aware of UKEF
    – 7 in 10 potential exporters stated cash-flow and payment risk influenced their decisions whether to export, before even considering specific export matters.
  • Adam suggested some solutions to boost UKEF
    – Reestablishment of trust between banks and business.
    Relationship managers not good enough. As soon as the word “export” is spoken, then customer should move up a level to a specifically trained export advisor. Frontline staff are not currently trained to a satisfactory level on trade.
    Better marketing of UKEF and improved process which saves time and duplication.
    – Action in private sector. The BCC noticed that companies were struggling with private currency hedging during the financial crisis, so they started their own hedging products (knowing the government couldn’t respond fast enough).
  • State aid was raised as an issue. It stops UKEF being able to provide competitive (100%) cover on supply and buyer credits. Whilst it was corrected that State Aid applies to different products at different levels, the room agrees there hasn’t been a proactive, energetic campaign to get rid of it.

Points raised and made in the Q&A

  • The panel agreed that a single transaction is not as attractive as a long term strategic partnership, when applying for Trade Finance. SMEs should consider their long term export prospects during the application process.
  • Paul, on behalf of UKEF, conceded that 40 contracts in a year is not many, however highlighted that efforts are being made to improve the process. Once this is complete, marketing can take place properly.
    – Anti Bribery legislation means a lot of questions must be asked, however a streamlined process can offset this. A simple process makes marketing easy.
    – The bank’s perceived reluctance to help may be down to a huge regulatory change. The FSA now insists on;
    – De-leverage
    – More capital allocated to the book they have
    – Banks to have much funding for their term liabilities.

This is driven by the need to make bank’s balance sheets more robust.

  • There was a general consensus that awareness of UKEF needs to be raised.
  • The concern of the increasing use of credit cards being used as a source of finance was also raised. Businesses are turning to cards when they can’t get finance through the usual channels; however this leaves their personal assets very vulnerable.
  • It was agreed that the UK’s strategy must be one of long-termism. Starting at the small things like Air Passenger Duty, all the way through to trade show access and funding, the government must commit resources and leadership to ensure Britain is soon as a country that encourages trade. Without this stability, Britain will lose trade to countries who have constant and established practices.
  • SMEs in the room commented that cooperation and coordination between UKEF and UKTI needs to be improved. It was suggested that at the moment their approaches couldn’t be more independent of each other.
  • It was agreed that the UK has a strong hub in London, with regard to trade organisations and finance. Any future strategy must build to safeguard and improve this resource.

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