Collateral

The risk bearers secure the exporter, or the bank, in the event of loss or default, e.g., if the borrower fails to meet his payment obligations arising from the financing transaction, or if he is unable to meet them due to political circumstances.

Typical risk bearers in an export finance transaction would be, for example:

• (inter)national government-owned and private credit insurers covering political risks, country risks, delcredere risks and manufacturing risks,
• foreign banks issuing a guarantee in favor of the bank,
• collateral pledged, or
• recourse to the exporter.

In an export finance transaction as well as in an export finance dossier, up to 99 risk bearers can be stored.

Existing collateral is shown in all transactions. Adjustments can be made when the contract or dossier is opened (New Request/ Contract Editor, Opening Dossier) and in the transaction Dossier Amendment.

The application calculates the risk amount based on the contract amounts recorded in the export finance transaction or the dossier. If there are no Participations in the contract, this will correspond to the bank's 'Own Take' and the maximum credit limit.

If there are participations in the contract, they will reduce the bank's risk accordingly, and in that case, the risk amount and the 'own take' correspond to the maximum credit limit minus the sum of all participations.

Example: Bank A participates with a share of 10% in an export finance contract for EUR 10 million, and bank B with a share of 20%. The bank's own take and the risk amount is therefore EUR 7 million (70% of the maximum credit amount). This means that an export credit insurer who participates with a share of 95% in each of the country and delcredere risks will bear EUR 6,650,000.00 (95% of EUR 7 million).

In addition, the interest risk is calculated based on the repayment schedules written into the contract. This amount corresponds to the sum total of interest from all the repayment schedules under the contract. For example, if several dossiers, and hence several temporary repayment plans, are stored under an export finance contract, then the interest from all the temporary repayment plans is converted to the contract currency, added up and shown in the field “Interest risk amount”. In the collateral grid, the interest risk is shown for each risk bearer according to the share of risk assumed.

The percentage or absolute amount of the delcredere and country risk cover as well as the type and details of the collateral can be saved for each risk bearer. The term delcredere risk, also called commercial risk, refers to the inability or unwillingness to make payments on the part of the debtor. The country risk includes all risk arising in connection with the debtor’s country, such as political risks (coup, riots, civil war), government-imposed foreign exchange restrictions, as well as risk stemming from changes to property rights (nationalization, expropriation).

Clicking the [ Add collateral] button adds a row to the table. Clicking the [ Delete collateral] button deletes the risk bearer along with all the data in the selected row and sets the share of risk coverage to zero.

The icon in the table row can be used to enter the participation role, risk type, address, type of cover, and the percentage share or absolute amount of the country and delcredere risks for the principal and the interest. The icon allows additional information about the cover to be entered; the type of information depends on the type of cover:

• For the cover types 'ECA Cover' (Export Credit Agency) and 'SERV Cover' (Swiss export risk insurance) , the cover information for the underlying credit insurance can be managed on the 'Cover Details' panel.
• For all covers of type guarantee or suretyship contract, the cover information for the underlying guarantee can be entered via the “Cover Details” panel.

For the risk type, a distinction is made between 'Risk Mitigation', 'Risk Transfer' and 'Risk Information'. Depending on the type of risk, an exposure booking entry based on the delcredere risk is made in the contract. Detailed information about the handling of exposures is given in the section “Liability”, below, and in the relevant transaction documentation.

• Items of collateral considered to be a 'risk mitigation' are those which reduce the bank's risk in the traditional sense, e.g., a cover note from an export credit insurer.
• A 'Risk Transfer' may be a guarantee issued by the importer's bank as part of a supplier's credit
• Items of collateral classed as 'Risk Information' type include collateral pledged, such as securities accounts or cash.

The total amount of cover for the country and delcredere risks is calculated based on the sum of all the portions pledged by the risk bearers.

• Total coverage country risk: the sum total of all portions of cover pledged by the risk bearers, regardless of risk type. The full cover may exceed 100%.
• Total coverage delcredere risk: the sum total of all the portions of cover pledged by the risk bearers of type 'risk mitigation' and 'risk transfer'. Portions of cover pledged by risk bearers of type 'Risk Information' are not taken into account. The full cover may exceed 100%.

The bank's residual risk is calculated based on the sum of all the portions pledged by the risk bearers and displayed as percentage and amount.

The residual risks can amount to a maximum of 100% but can never be less than 0%. The calculation is as follows: 100% minus the sum of the relevant risks (country/delcredere/principal/interest) of all risk bearers of type 'Risk mitigation'. If there is at least one risk bearer of type 'Risk Information' with cover type 'pledged cash account' or 'pledged custody account', then the corresponding residual risk will always be 0%. It follows that pledged assets or securities accounts that only represent a proportion of the cover should be entered as 'Risk Mitigation'.

On the basis of the pledged collateral, booking entries charged to the risk bearers are entered via the “Liability” panel.

There are 3 kinds of liability types to be taken into account in the liability:

• RMD - binding engagement booking debited to the account of a risk bearer of type 'Risk Mitigation'
• RTD – binding engagement booking debited to the account of a risk bearer of type 'Risk Transfer', provided that the checkbox “With liability booking” on the Collateral Details panel for the participant is activated
• RTD – only an internally updated engagement without a booking debited to the account of a risk bearer of type 'Risk Transfer', where the checkbox “With liability booking” on the Collateral Details panel for the participant is not activated

Collateral of type 'Risk Information' is not taken into account within the liability.