2011 508 accessible version - Export-Import Bank of the United States

Non-sovereign risk taking is defined as the wi llingness to accept risk and the extent towhich additional forms of security or means to minimize the risks are required. In 2011,Ex-Im Bank adopted a more standardized a pproach in its mediu m-term insurance andguarantee programs. The new approach was established to create an offset to repaymenttrends in recent years and to fundamentally improve the balance of future fl ows. In theBank’s long-term programs, many corporate/non-sovereign transactions are alread yasset-protected, meaning that the assets of the project or the b orrower are pledged ascollateral to the Bank in the event of default.Ex-Im Bank’s Risk Profile for Medium- and Long-Term AuthorizationsIn 2011, Ex-Im Bank’s authorizations spanned all geographic areas, included countriesat all levels of development, and were dist ributed across a wide range of country riskcategories. Of the approximatel y $22 billion authorized in medium- and long-termexport sales, 69 % was private sector risk . Sovereign and publi c non-sovereign riskaccounted for 9% and 22%, respectively.From a risk distribution perspective, on a weighted average basis, Ex-Im’s medium- andlong-term approvals were heavily dominated by mid-range risk: on a scale of 1-8 with 8representing the riskiest buyers, mid-range is a 4, which typically is considered arelatively good risk. Countries with a rating of 4 generally have a cover policy of “open”without any or very few restrictions. When all aircraft cases are excluded, t he averageMLT risk was a 4 in 2011.When project finance cases are also excluded from Ex-Im Bank activity, not only doesthe portfolio of auth orizations radically shrink, the composition of the remainin gportfolio also changes. (Project Finance cases are removed for similar reasons asaircraft: they are heavily structured and secured with off-shore escrow accounts or othersecurity structures to mitigate default and transfer risk.) Specifically, the size of theportfolio goes from almost $22 billion to $2.5 billion and the risk profile on a weightedaverage basis is within the 1 to 3 risk range for most cases. Thus, t he overall risk profileof Ex-Im’s authorizations during 2011 was mid-range to good risk.G-7 ECAs Policies and PracticesEx-Im Bank routinely exchang es information with other ECAs in G-7 countriesregarding their cover policies. A review of cover policies for 25 emerging a nd lowerincome markets in Africa, Asia, Eastern Europe, and Latin America shows bothsimilarities and diff erences. For relatively low risk markets, including five of the ninemarkets that Ex-Im Bank has identified as target markets, all of the reporting ECAs areopen without restric tion. There are, however, differences in cover pol icy and r iskmanagement strategies in greater risk markets. Other ECAs sometimes restrict coverageto foreign exchange earning transactions on ly, set a per transaction limit, or adopt acase-by-case approach. The case-by-case approach allows an ECA to pick an d chooseamong applicants but does not provide transparency regarding the decision criteria.A comparison between Ex-Im Bank and its G-7 counterparts across the greater ris kmarkets indicates that Ex-Im is generally more risk averse with its cover policy. Forexample, Ex-Im is off-cover for public sector transactions in several markets, whereas a22