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Organization of Structured Export Financing by Commercial Banks in Russian Federation

Written by I. Ageev

Paper category

Bachelor Thesis


Business Administration>Banking & Insurance




Bachelor Thesis 2.2 The method of export financing structure of the Russian Federation 2.2.1 Participants of export financing The private sector of trade financing is represented by commercial banks, suppliers, customers, private insurance companies, reinsurance companies, non-bank financial institutions and capital markets, and is mainly supported by the state The agency is represented by Export Credit Agency (ECA) and International Development Bank (EBRD, IFC, etc.) (Yescombe, 2008). In the traditional export financing system, commercial banks play a central role, not only making payments from importers to exporters, but also by providing loans, usually only with the right to finance commodities as a guarantee. Under this framework, banks have certain risks, and ECA will only formally participate when the risk of default in the private financial sector is too high. The classification of market participants in Russian export financing is shown in Table 1. (Vikremereitn, 1995) Loans and trade finance transactions are a key issue today. As far as the financial crisis situation in the inter-bank market is concerned, it is particularly unstable in terms of attracting capital. Western banks have greatly reduced the restrictions on providing resources to Russian counterparties. Only "blue chips" retain the opportunity to enter the market. However, even this situation allows banks to continue to operate effectively under various foreign trade export credit and trade financing schemes. (Utkin, 1998) As a rule, banks that provide services to foreign trade participants themselves have become an important link in international trade. To this end, the bank has set up a special foreign trade activity department to provide a wide range of services related to structured export financing. In order to achieve these goals, banks negotiate agency relationships with other foreign banks and open agency accounts; open offices abroad; obtain ownership of foreign banks, etc. The success of participants in international trade transactions depends to a large extent on the banking sector. The foreign economic activities of commercial banks are implemented through various methods and tools used by exporters and importers when arranging trade contracts. It is not only very important in creating documents and choosing payment methods, but also provides exporters or importers with opportunities to obtain financing, especially if the subject matter of the transaction is expensive investment goods (machinery, equipment, industrial complex, etc.). Lenders and borrowers in international trade transactions (trade financing) can be represented not only by enterprises, but also by credit institutions, government agencies, regional governments, and other organizations. (Dyumulen, 2011) 2.2.2 The main features of long-term financing covered by ECA There are currently three institutional organizational models for the export support system: insurance; guarantee and/or funding and hybrid systems. The hybrid model has become the most common model today because it combines insurance and financing at the same time, not only for a single transaction, but also for the entire portfolio. All three legal forms of ECA are derived from these models (Aksenov, 2012):-State government departments. State support for exports can be provided in the form of special export credit programs through the Central Bank or the Ministry of Finance or the Ministry of Industry. -The National Export-Import Bank or International Development Bank, such as the European Bank for Reconstruction and Development, International Finance Corporation, etc. -Insurance companies and countries that have exclusive agreements. For example, Coface in France, Euler Hermes in Germany and Atradius in the Netherlands. The classic European model focuses on insurance coverage for export business. In contrast, the United States mainly involves guarantees and credit support (U.S. Export-Import Bank, CCC, OPIC). The main functions of export credit agencies, regardless of their legal form and specific form of provision (guarantee or insurance) are (Aksenov, 2012): 1. Export credit short-term insurance for commercial and political risks (with a maximum period of 2 years). The insured is the exporter (supplier) of goods (projects, services), or the exporter’s bank provides credit to foreign buyers and importers. 2. According to the OECD consensus, long-term insurance for commercial and political risk export credits (terms of 2 to 15 years). The insured is an exporter (supplier) of goods (projects, services), or an exporter bank-Importer.3 that provides credit to foreign buyers. Provide insurance for foreign investment related to export industries and technologies to prevent the risk of loss of income due to the hindered transfer of overseas investment to exporting countries, and the unreasonable transfer of investment due to political reasons. The investor has insured. All banks that finance international trade use only documentary letters of credit: UCP 500 or regulated UCP 600, documentary collection, regulated URC 522, and conform to the state-supported international rules on export credit, which is the OECD consensus (Balabanov, 2007. According to OECD regulations, the loan period is 2 to 7 years, the loan size-up to 85% of the export contract, and the interest rate-based on floating interest rates (London Interbank Offered Rate, Euro Interbank Offered Rate, etc.).), The insured is the exporter’s bank. The down payment shall be at least 15% of the contract value. The contract shall be paid as a separate payment note or a letter of credit issued by the borrower. Equivalent in U.S. dollars), interest is paid every six months based on the outstanding loan amount. Read Less