THE ART OF FORFAITING
Sconto pro soluto!*
You don’t need to be around for long before you become aware of how influential Italian forfaiters are in the
forfaiting market. The obvious question to ask is, why? By RICHARD WILLSHER.
T
hese are not great days for Italian forfaiting,
but the market could be on the turn. “A fair
percentage of the Italian exports of capital
goods is made up of machinery and equipment,
supplied by medium-sized companies to medium-
sized buyers in emerging markets,” says Giancarlo
Parente of Simest, the Italian government entity that
provides export-credit interest support programmes.
“The average size of export contracts does not
lend itself to the use of syndicated buyer credits,
which are too complex to structure and to handle.
The simplicity and speed of forfaiting is, therefore,
particularly welcomed by Italian businesses,” he adds.
10 TFR NOVEMBER 2010
Enrico Seralvo, Managing Director of Intesa
Soditic in Milan, adds that forfaiting has been in
use in Italy for decades and remains as relevant as
ever. He recalls a time when accessing export credit
insurance cover through Italian export credit agency
(ECA) SACE was much less efficient than it is today.
Moreover, in those days it was not possible to
assign SACE policies without recourse. Therefore
forfaiting, especially involving banks operating
outside of Italy, was the most efficient way of
ensuring Italian exporters could avoid the payment
risks of offering medium-term credit in support of
their equipment sales.
Troubled times and changing terms
A lot has changed since those golden days when
interest rate subsidies were richer than they are today,
but forfaiting remains relevant, says Parente. “Over
the past decade the forfaiting scheme has supported
roughly a yearly average of €2.3bn of business,” he
says. Yet Italy has been through troubled times over
the past couple of years, along with all of the other
major economies of the western world.
The years 2008 and 2009 both witnessed declines
in exports of Italian capital goods. This year has seen
a modest increase, although the strength of the euro
against the US dollar is not helping. Paolo Jelmoni of
Treviso, Veneto-based brokers and advisors Reginato
& Mercante is moderately optimistic that this will
improve, as is Raffaele D’Alo of Eufintrade in
Lugano, Switzerland.
“Today the market is very depressed,” says D’Alo.
“However, it seems that something is moving and
there is some increase in exports to China, Turkey
“Today the market is very depressed… However, it seems that
something is moving and there is some increase in exports to
China, Turkey and elsewhere in the Far East, albeit that these
transactions are supported by short-term letters of credit.”
and elsewhere in the Far East, albeit that these
transactions are supported by short-term letters
of credit. And I have to say that there are a lot of
requests for ‘silent confirmation’ or discount of
usance letters of credit issued by Iranian banks.”
This represents a general shift away from
traditional discount of promissory notes and bills
of exchange in favour of deferred payment
letters of credit (LCs). Many of these are simply
discounted by local Italian banks and held in their
books until maturity.
Paolo Jelmoni says that banks in some of the
larger emerging markets have plenty of liquidity
and are therefore tending to assist their importing
customers with local facilities. This means that Italian
exporters may simply be paid at sight, without the
use of LCs or medium-term financing.
In addition, he notes that Italian exporters
are increasingly requesting capacity to discount
corporate names without the support of bank
guarantees. This also tends to impair the liquidity
of the market, as there are fewer counterparties
to buy such paper. In particular, banks are
increasingly constrained by tightening capital and
liquidity regulation.
Moreover there is increasing competition from
SACE. Jelmoni notes that it has become much more
efficient and aggressive. It can now give approval for
medium-term credit cover in the space of a week,
which makes it a staunch competitor for traditional
brokers of forfaiting deals.
New demands
Nevertheless, Eufintrade’s Raffaele D’Alo says
that he remains optimistic about the future
development of forfaiting. “Based on my own
experience, I have personally seen several crises
in the market. Each time the question arises, ‘will
forfaiting survive?’ But we are still here talking about
this product and the number of participants at the
IFA Annual Conference increases year after year. I do
believe, however, that the market should change its
approach towards corporate risk transactions, because
they represent the highest percentage of the enquires
that we see from Italian exporters.”
RAFFAELE D’ALO, EUFINTRADE
So while it looks as if the nature of the demand
for forfaiting support has changed, the forfaiting
technique itself remains as popular in Italy as ever.
There, as in the rest of the international banking
and trade finance community, the long shadow of
the 2008 crisis still darkens the picture. Whether
tighter credit terms will now be a fact of life as the
demands of Basel III take hold, or whether forfaiters
will find new ways to do business, we will have to
wait and see.
But the chances are that Italian forfaiters, and
transactions structured to support exports of Italian
goods, will continue to be significant features of the
international forfaiting market, as ever. ‰
Richard Willsher is a financial journalist and trainer,
perhaps best known for the seminars that he
conducts with the IFA. He can be contacted by
emailing rdw@richardwillsher.com.
For more information about the International
Forfaiting Association see: www.forfaiters.org or
e-mail info@forfaiters.org.
* In English: ‘discount without recourse’
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