Medium-and long-term export credit insurance

The Office du Ducroire may cover buyer credits funded by banks in order to allow foreign buyers to finance export transactions of contracting equipment, services or construction works, as well as supplier credits which the exporter may arrange for its foreign contractor.

Officially supported export credits with repayment terms of two years or more are subject to the OECD Agreement on guidelines for officially supported export credits, commonly known as the OECD Consensus.

INSURANCE OF BUYER CREDITS

Under a buyer credit, the bank directly grants the loan to the customer at the request of the exporter in order to finance export transactions of contracting equipment, services or construction works. The exporter can draw on the loan and thus receive cash payment for the delivery of goods and services made under the commercial contract.

As a lender, the bank may wish to arrange insurance against the risk of non-payment of the foreign buyer. Thus, the Ducroire may cover the lending bank against the risk that the customer defaults in whole or in part on the buyer credit (principal and interest) or only lately repays the debt. The origins of the non-payment may be twofold, either political or assimilated risk (risk of currency transfer, war, revolutions, natural disasters and risk of expropriation or government action) or commercial/buyer risk.

This cover may also be applied to other forms of medium- and long-term credits, such as:

• Bank to bank credits (the foreign bank will be the creditor)

• Financing of projects (credits granted to a « special purpose company » which may be reimbursed through the project’s generated cash flow)

• Soft loan (credit granted at concessional conditions)

• Financial leasing

Via its bank, the exporter may offer deferred payments at a fixed interest rate, thanks to the interest rate stabilisation tool⁽¹⁾ of the Ducroire.

Insurance of supplier credit

Under a supplier credit, the exporter grants the foreign buyer extended payment terms. These payment terms are usually materialised by bills of exchange, which are drawn by the exporters on their own order and accepted by the foreign buyers, and possibly guaranteed by the buyer’s bank. In some countries, promissory notes are more likely being used and issued by the buyer.

As a credit provider, the exporter normally seeks to be covered against the risk of payment default of the foreign buyer. Besides the non-payment risk, the exporter is also exposed to the risk of contract termination by the buyer prior to delivery (cancellation risk) and the risk of unfair calling of bank guarantees, issued on the exporter’s instructions. These risks may also be covered by the Ducroire.

In most of the cases, the exporter may wish to transfer to his bank the financing of the extended credit terms offered to his customers. This kind of refinancing will either take the form of a discounting operation with or without recourse against the exporter. If the refinancing is done by the bank, then the latter will become the beneficiary of the insurance policy.

The Ducroire covers the risk that the customer defaults in whole or in part on the supplier credit or only lately repays the debt, either due to political or assimilated risk (risk of currency transfer, war, revolutions, natural disasters and risk of expropriation or government action) or from commercial risk.

This insurance may also apply to other forms of medium- and long-term credits linked to export transactions such as the operational leasing.