The Road Ahead What should be done to improve capacity of developing countries to finance trade Rubens V. Amaral Jr. CEO, Bladex Geneva, March 27 th 2015
a) Latin America context - Trade Finance Availability - Growth Prospects - Risk Perception b) The experience of Bladex - Mission & Vision - Trade Finance Fund - Credit Insurance c) The South-to-South Cooperation - G-NEXID s Role 2
Latin America context Trade Finance Availability Important divergence among countries in accessing Trade Finance Access to Finance Index Top countries Low countries Ranking Country 7 Panama 23 Chile 31 Guatemala 38 Peru 44 Brazil 47 Dominican Rep. 58 Honduras 63 Uruguay 66 Ecuador 67 Colombia 68 Paraguay 72 Bolivia 73 Costa Rica 74 Mexico 80 Jamaica 83 Nicaragua 89 El Salvador 114 Venezuela 133 Argentina Source: 2014 World Economic Forum; The Global Enabling Trade Report 2014 3
Latin America context (Cont.) Complexity of trade Market access, border administration, Infrastructure and operating environment. Ranking Enabling Trade Index Top countries Low countries Ranking ETI Country 8 Chile 42 Costa Rica 51 Peru 52 Panama 60 Uruguay 61 Mexico 62 Guatemala 65 Ecuador 68 Nicaragua 71 El Salvador 73 Colombia 79 Dominican Rep. 80 Jamaica 84 Honduras 86 Brazil 87 Bolivia 95 Argentina 113 Paraguay 125 Haiti 137 Venezuela Source: 2014 World Economic Forum; The Global Enabling Trade Report 2014 4
Latin America context (Cont.) GDP and trade flows - Moderate and Divergent Source: Bladex research; Data: FMI, WEO, January 2015; WTO. 5
Saludos, Latin America context (Cont.) Bladex Loan book by Rating of Country of Exposure Improved risk perception of the Latin America region over the last 20 years At this moment, 77% of Bladex s loan book is concentrated in Investmentgrade countries compared with 21% and 14% in 2003 and 1993 respectively 1993 2003 2014 Reserves for loan losses and off balance sheet risk (MnUSD) 56.1 258.3 86.5 Total Stockholders Equity (MnUSD) 236.3 584.3 911.1 Tier 1 Ratio (%) 27.8% 35.4% 15.3% 6 6
The experience of Bladex: Trade & Regional Integration Bladex MISSION: To provide financial solutions of excellence to financial institutions, companies and investors doing business in Latin America Bladex VISION: To be recognized as a leading institution in supporting trade and regional integration across Latin America 7
The experience of Bladex Risk Sharing Programs Bladex signed a risk-sharing facility with IFC in 2014 - IFC Critical Commodities Finance Program to expand access to trade finance for agribusinesses in Latin America Program amount: USD 350 million 50/50 risk sharing Recycling liquidity within the Region: Bladex is accessing liquidity pools in LATAM to finance the needs of Latin American clients syndications platform Trade Finance Fund Bladex is setting up a securitization of its trade portfolio to allow it to continue to grow without more leverage. Target: Institutional Investors Credit Insurance: Bladex is analyzing how to offer credit insurance to Increase capacity to attract more market financing South-to-South Cooperation: Bladex is seeking to use G-NEXID as lever to increase the cooperation among Export Credit Agencies in the Southern Hemisphere 8
Recent trends in trade finance activity Benefits Challenges Trade Finance Securitization BANKS Maximize return on capital Reduce USD funding needs Preserve expertise in origination and management of TF loans Regulation Replenishment of assets (short term nature) Change in investors interest Increased non-bank participation in funding TF assets should make the industry more resilient The rising of Trade Securitizations should drive Rating Agencies into a preferential treatment for Trade Loans NON BANK INVESTORS New Asset Class with low credit risk Attractive returns relative to risk Lack of familiarity with trade finance assets outside more mature markets Tighter margins and short term nature COMPANIES Increase source of financing Foster Supply Chain financing Tool tends to favor large corporations flow financing 9
Recent trends in trade finance activity Benefits Challenges Credit Insurance Essential risk sharing partner for the banking and factoring industry Complements the banking traditional risk approach with the insurance historical and track record risk approach Thus it is necessary to include explicit recognition of the Private Insurance as an eligible credit risk mitigation technique BANKS INSURERS COMPANIES Transfers risk to >A-Rated Insurers Allows additional lending to clients Reduce concentrations Additional 3 rd party credit evaluation Permissible by the Basel Accords Trade structuring & Asset Base tool 4 SMEs lending Deal enabler Attractive premiums Penetration potential TF Lower claim history Risk sharing with client Facilitate discount and A/R financing & true sale of A/R Improve cash-flow Foster Supply Chain financing Strengthen Customer relationship Case by case solution Waiting Period Documentation Full recognition as an eligible mitigation technique Lack of familiarity with developing countries and clients Documentation is still not an «on demand guaranty» Soften the Burden of Proof Limited ability to find international coverage Lack of knowledge of tools available 10
G-NEXID Role and Permanent Agenda Established officially in 2006 G-Nexid role and permanent agenda includes: Cooperation and Financing: to promote and develop cooperation and common understanding of issues related to Trade, Project Financing and Development financing among its members. Foster cooperation between its members facilitating cooperative agreements such as co-financing joint operations and missions Expand South South trade and investment flows Identify and Share financing opportunities Assistance and facilitation of Trade Financing as well as Infrastructure and project financing: Technical Assistance and Advise: Facilitate the flow of information among its members, sharing country and regional experiences, and provide networking opportunities Acquire Intelligence and Disseminate relevant knowledge and best practices using the resources made available by the UNCTAD and other international institutions Capacity Building: allow its members to benefiting from new trends, innovative financing mechanisms, structured trade financing and common challenges solutions Define the priority issues for its members and Organize focused workshops, training and seminars and publications 11
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Access to Trade Finance Other indicators Ease of access to loans Availability of financial services Affordability of financial services Ranking Country 8 Panama 18 Bolivia 20 Chile 28 Peru 29 Ecuador 40 Nicaragua 49 Guatemala 54 Dominican Rep. 56 Paraguay 61 Brazil 67 Colombia 72 El Salvador 80 Uruguay 81 Honduras 88 Mexico 100 Costa Rica 104 Venezuela 119 Jamaica 133 Argentina Ranking Country 10 Panama 20 Chile 29 Brazil 31 Guatemala 34 Dominican Rep. 45 Honduras 48 Peru 50 Colombia 52 Jamaica 58 Mexico 69 Costa Rica 75 Paraguay 82 Ecuador 84 Uruguay 89 El Salvador 110 Bolivia 114 Venezuela 119 Nicaragua 127 Argentina Ranking Country 7 Panama 28 Guatemala 29 Chile 46 Brazil 55 Peru 56 Uruguay 58 Costa Rica 62 Honduras 71 Jamaica 72 Dominican Rep. 76 Paraguay 77 Ecuador 80 Mexico 87 Bolivia 90 Venezuela 92 Nicaragua 94 Colombia 96 El Salvador 133 Argentina 13
Access to Trade Finance ETI Methodology The ranking ETI (Enabling Trade Index) is a compilation of individual indicators into a single index, on the basis of the underlying ETI framework. The ETI framework captures the various dimensions of enabling trade, breaking them into four overall issue areas and then into 7 pillars: Market access. Measures the extent and complexity of a country s tariff regime, as well as tariff barriers faced and preferences enjoyed by a country s exporters in foreign markets. Border administration. assesses the quality, transparency and efficiency of border administration of a country. Infrastructure. Assesses the availability and quality of transport infrastructure of a country, associated services, and communication infrastructure, necessary to facilitate the movement of goods within the country and across the border. Operating environment. Measures the quality of key institutional factors impacting the business of importers and exporters active in a country. The ETI are sourced from various organizations, several of which provided guidance and support in designing the ETI framework, such as: The International Trade Centre, the Global Express Association, the World Bank, the World Trade Organization and UNCTAD. 14
Access to Trade Finance ETI 7 Pillars 15
Thank You 16