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Credit Risk Analysis by Ecgc
Credit Risk Analysis by Ecgc
A presentation by ECGC
What is Risk?
Uncertainty
about the future
outcome
Lack of
knowledge
Imperfection in
knowledge
Possibility of Loss
Exports
Goods
Services
Credit
Extending supplier
credit: DP, DA, OA
Risk
Possibility of nonpayment of accounts
receivables
Legal
Risk
Credit
Risk
Export
Credit
Risk
Transfer
Risk
Exchange
Risk
Political Risk
Credit Risk
The risk of
Insolvency
Default
Fraud
Unwillingness to accept the goods on
the part of the buyer
All resulting
in..
Credit
Exchange Risk
The possibility of
variability in the
exchange rate on
account of the time lag
between the date of
contract and actual
payment is referred to
as 'Exchange Risk'
Transfer Risk..
Failure of
Buyer's Bank
affecting
payment of
outstandings
Weakness in
economy of
Buyer's country,
viz. low
reserves, BOP
problems
Exchange or
trade controls
introduced in
Buyer's
country
Legal Risk
import procedures
taxation
employment practices
currency dealings
property rights
the protection of intellectual
property
agency/distributorship
arrangements
Factors Leading to
Commercial Risks
Buyers willingness
to pay:
Behavior of the
debtor
Buyers ability to
pay:
Debtors
financial
condition
Commercial Risks
Insolvency/ Bankruptcy
Breach of Contract
Payment Default
Refuse to take delivery of goods
Ability or behavior?
Political Risks
Policy
INSURER
ECGC
INSURED
EXPORTER
RISKS BUYER/
COUNTRY
COMMERCIAL RISK
COUNTRY
BUYER
BANK
NON LC
LC
TRANSACTION
Insolvency of
buyer/LC
opening bank
Default of buyer
Repudiation by
buyer
POLITICAL RISKS
War/civil
war/revolutions
Import restrictions
Exchange transfer
delay/embargo
Diversion of
Voyage Risk
and
Country
Underwriting
that assesses
country risks
Country Underwriting
Evaluating
a Country
Reviewing
a Country
Assessment and
evaluation of political
risks associated with
countries for the purpose
of premium calculation,
determining types of
cover and terms of cover
Country reviews are
taken up on a regular
basis for up/down
grading
Evaluating a Country
Reviewing a Country
Political
stability/
instability
International
Relations:
relation with
neighbours,
IMF, WB,
Trade Bodies
Eco. Structure:
GDP, inflation,
exchange rates,
BOP, import
cover, external
sector, debt,
reserves, FDI
Policy Trends:
fiscal,
monetary
policy,
structural
reforms
Reviewing a Country
Late
Payment
Experienc
e
ECGC
Internation
al Rankings
Experience
Experience
with other
credit
insurers
Trade
Relations
with India
Objective Scoring
Methodology
ECGC Classification
A1 (1/7)
A2 (2/7)
B1 (3/7)
B2 (4/7)
C1 (5/7)
C2 (6/7)
D (7/7)
Types of Cover
Open
Cover
OR
Restricted
Cover
Cover with
Restricted Cover
Countries
Restricted Cover
Countries
Restricted Cover
Countries
Liberalization of ECGCs
Underwriting Policy
Country Classification
as on 1st
April
2004
Open
Restricted
Cover
Country
Classification
Cover
(revolving
limit facility)
Restricted
Cover
(case by
case)
Total
A1 (1/7)
26
26
A2 (2/7)
59
59
B1 (3/7)
28
29
B2 (4/7)
30
31
C1 (5/7)
25
30
C2 (6/7)
17
25
D (7/7)
10
22
Total
195
20
222
Moderate Risk
Moderately Low Risk
Low Risk
Insignificant Risk
Risk
Comparison: Economic
Indicators
Country
CAD/GDP
Debt Service
Ratio (%)
Import Cover
(in months)
USA
10987.9
0.05
0.7
China
1446.9
CA Surplus
4.8
12.45
Russia
433.5
CA Surplus
9.4
11.64
Kenya
13.2
0.17
10.6
4.8
19.8
1.1
15.3
5.67
Uganda
0.67
11.6
10.96
Iraq
19.9
CA Surplus
NA
Comparison: Other
Indicators
Country
ECGC
RV
(2003-04)
in Rs.mn
Transfer
Delay
Claims
Paid
(Rs.mn)
Political
Situation
India Trade
Balance
(2002-03) in
Rs. Mn
Euro
money
Score
Forex
Delays
USA
59124.06
Nil
Stable
311571
96.64/100
0-1 m
China
5549.67
Nil
Stable
-99751.53
61.52/100
1-3 m
Russia
970.45
Nil
Relatively
Stable
31549.48
49.02/100
1-2 m
Kenya
1550.86
Nil
Relatively
Unstable
8237.8
36.11/100
2-3 m
22.13
Nil
Relatively
Unstable
1663.5
31.5/100
1-2 m
Uganda
414.31
607.2
Relatively
Unstable
3097.38
37.8/100
2-3 m
Iraq
1355.56
4025.97
Unstable
10343.39
4.28/100
3-4 m
Focus LAC
Focus Africa
Focus CIS
ECGC Schemes
Maturity Factoring
Special Schemes
Consignment policy :
to cover consignment exports where goods are
shipped and held in stocks overseas ready for
sale to overseas buyers , as and when orders
are received
Exposure policy
Bancassurance
E-Connectivity