Sid bank lecture

International Economic Development for Slovene

Economy with instruments of Long Term Financing and Insurance

Sibil Svilan, President of Management BoardRoman Rojc, Director, Research and Strategy

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Contents

1. SID Bank’s Profile

2. Importance of Export for Slovenia

3. Export Promotional System

4. Export Financing

5. Export Credit Insurance

6. Other Supportive Services

7. Impact

8. Future role

6 June 2013 ICPE - NIFM International Training programme - SID Bank, Ljubljana, Slovenia

Mission

We develope and provide long-term financial services,

designed to supplement financial markets and in such

way stimulate competitive position of the economy,

creating new jobs and sustainable development of

Slovenia.


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• Established as a Stock Company, 1992, under the Law of Slovenian export company for insuring and financing Slovenian export.

• Transformation to national Export and Development Bank 2005 – 2008.

• Ownership: Republic of Slovenia - 100%.

• Meeting customers’ demands and business needs in the area of market gaps and failures.

• Current credit rating: Ba1 (Moody’s).

Company profile


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Key Figures

million EUR 2008 2009 2010 2011 2012

Rating / Aa2

(Moody’s)

Aa2

(Moody’s)

A1

(Moody’s)

Baa2

(Moody’s)

Total Assets 2.088 3.025 3.896 4.029 4.088

Equity 161 322 328 332 340

CIR 29,3 22,4 15,1 13,1 8,5

Net Profit 2,8 0,9 5,7 6,5 5,0

Capital Adequacy 11,1% 16,7% 13,5% 14,4% 14,2%

No. of Employees 76 87 94 112 124


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Legal Status, Purpose & Visibility

SID Bank is a specialized promotion and development bank with its own legal nature of credit institution and Export Credit Agency/Bank (ECA), equity and cash assets.

SID Bank has the legal status of a State-owned bank as has been established by:• The Law of Slovene Export and Development Bank • The Law on Insurance and Financing of International Business

Transactions

It operates under the supervision of the Bank of Slovenia, Agency for Insurance Supervision, Ministry of Finance and Ministry of Economy.

• Sustainable finance and insurance• Good reputation - responsible lending• SID Bank’s loan programs are offered through majority of Slovenia's commercial

banks• SID Bank’s extensive involvement in government’s anti-crisis measures

confirmed its central and leading role among all public-promotion institutions• SID Bank’s importance for national economy and sustainable development of the

Republic of Slovenia is highly acknowledged among all stakeholders

SID Bank’s purpose is development and promotion of tasks and services that address market gaps and failures across the following areas:

• International trade and economic cooperation,• SMEs,• RDI - Research, development and innovation,• Enterpreneurial and educational activities,• Ecology, energy and construction of infrastructure,and other areas, which are important for development of Republic of Slovenia.

Visibility

Purpose

Legal Status


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Covering market gap – complementary services

Financing, bonds/

guarantees

Insurance (as a national

ECA)

Other financial & information

services

Strategy and business model

Specialized (public) export, promotion and development bank with

The Role of SID Bank

mandate for promotional and development financial services


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Position of SID Bank

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TIME

YIELD

MARKETCommercial banks, insurance companies…

RISKS

StateFundsAgencies


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• Financing projects important for sustainable development, (Re/Co) financing banks• Risk participation (funded, unfunded)• Guarantees• Credit rating information

Two Ways

On its own account, SID Bank's provides:

On account of the State, SID Bank offers:

• Insurance of – medium/short term export credits against commercial and non-commercial risks– outward investments against non-commercial and commercial risks – Interest Rate Equalization Program

• Lead mandate on administrative procedures for state guarantees in financial crisis• Other transactions on special authorization


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Business Model of DFI

Source: UN-DESA, 2005


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DFI’s Main Functions


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Appearances of DFI


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Typical Development Banks - IMultilateral DB

World Bank EIB + EIF CEB EBRD BSTDB NIB0

50

100

150

200

250

300

350

400

Vo

lum

e o

f B

usi

nes

s (b

ln U

S$)

Durban, SA, March 2013:BRICS Development Bank


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Typical Development Banks– IINational DB

1

10

100

1000

Obi

m u

mrd

€

• INDUSTRIAL FINANCE CORPORATION OF INDIA (IFCI)• INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA (ICICI)• INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI)• NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT

(NABARD).• SMALL INDUSTRIAL DEVELOPMENT BANK OF INDIA (SIDBI)


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Export Credit Agencies

MULTILATERAL NATIONAL (PUBLIC) PRIVATE

Global- MIGA/WB

Regional- ATI, Kenya

Direct Insurers- Atradius, Holland- Euler Hermes, Nemačka- Coface, Francuska

(Re)insurers- Munich Re- Swiss Re

Pure cover ECA- SACE, Italy- AIC, USA- Chubb, USA- Euler Hermes, Germany- Coface, France

Export Creditors- Czech Export Bank- Hungarian Export Import Bank

Insurance + Creditors- EDC, Canada- US EXIM, USA- Eximbank SR- OeKB, Austria- Finnvera, Finland


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Peer Comparison

HBOR

KfW Bankengruppe

OeKB ICO Korea

Development Bank

BNDES

Country Slovenia Croatia Germany Austria Spain Korea Brazil

Founded 2007 1992 1948 1946 1971 1954 1952

Ratings Baa2 (Moody's) Baa3/BB+ Aaa/AAA/AAA Aaa/AA+ Baa3/BBB/BBB- A1/A/A+ Baa1/BBB-/BBB

Ownership 100% State

Owned 100% State

Owned 80% Fed. Gov.

20% Fed. States

Wholly owned by Austrian

Banks

100% State Owned

100% Government

Owned

100% Federal Republic

State Support Guarantee to All

Obligations Guarantee to All

Obligations Guarantee to All

Obligations Authorized by

the State Guarantee to All

Obligations

Guarantee to Some

Obligations Implicit Support

Supervision Min. of Finance Bank of Slovenia

Parlament Parlament

Ministry of Finance

Ministry of Finance

Ministry of Economic

Affairs

Financial Services

Commision

Ministry of Economic

Development

Total Assets US$5.5 bn US$3.9 bn US$640.4 bn US$50.5 bn US$125.6 bn US$128.4 bn US$336.7 bn

Total Equity US$0.5 bn US$1.3 bn US$23.0 bn US$0.8 bn US$4.8 bn US$17.7 bn US$34.5 bn


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SID Bank Group

SID - First Credit Insurance Company

Inc., Ljubljana

Pro Kolekt d.o.o.,

Ljubljana

Prvi Faktor d.o.o.,

Ljubljana

CMSR - Centre for International

Cooperation and Development, Ljubljana

(Export) credit insurance (ST – marketable)

Debt collection, Credit information

Factoring

Research and analyses, Consulting, Information activities, Bilateral ODA, Soft loans, Mixed credits

100% of Total Assets 100% of Total Assets 50% of Total Assets 100% of Total Assets


SID Bank Group - Main Services

Export, promotional & development finance

Export credit and investment insurance(non-marketable), IREP – as national ECA

(Export) credit insurance (ST – marketable)

Debt collection, Credit information

Factoring

Research and analyses, Consulting, Information activities, Bilateral ODA, Soft loans, Mixed credits


Usage of SID Bank’s Services

6 June 2013 19

For the purpose of the Internalization - 8 bln €

ICPE - NIFM International Training programme - SID Bank, Ljubljana, Slovenia

SID Bank’s response on crisis

InsuranceLoans

Support for 5.900 companies(small, middle, big, export oriented, project, new business models, develop,ment investments…)

Slovenian economy business financing and insurance

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The volume of supported Slovenian exports amounting to

EUR 25.3 billion

With € 4.5 billion financed projects across Slovenia

Financing 28 development projects of the automotive industry

- € 211 million

Implemented 3 guarantee scheme for the RS - the total quota €1.6

billion


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Contents




4. Export Financing



7. Impact

8. Future role


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Openess of the Slovenian economy

Source: J. Mencinger

Relativelly open economies

Relativelly “closed”economies


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Merchandise trade – real


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ST indicators of economic activity


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Change in Slovenia’s market shares


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Global economic circumstances

Source: FT


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The New (Ab)normalNormal?- insolvent banking systems

- insolvent sovereigns (and sub-sovereigns) - zero-risks investments?

- rock-solid countries with 200% debt to GDP ratio

- misinformation and manufactured "News", mistrust and "violent" markets volatility

- expectation of "unexpected"? (no one knows anything...)

- downgrades, increased corporate defaults, "voluntary" haircuts

- flood of unregulated derivatives, high frequency trading

- higher anticipated inflation and subsequently erosion of wealth

- concentration of wealth among few

- unemployment insurance, mortgage debt restructuring, credit counseling, better access to health insurance?....

- liquidity-constrained consumers, low confidence, job insecurity, discount

retailers.... --- Abnormal is the new "normal"------


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Contents




4. Export Financing



7. Impact

8. Future Role


• Preparing companies to enter foreign markets

• Support to companies entering

new markets • Strengthening of the presence

on traditional markets

• Ensuring safety and possibilities of competitive appearance on traditional and new foreign markets

• Introduction of higher forms of

internationalization

6 June 2013 29

Export support system

Source: MI 2011

PRESIDENT OF THE RSPREMIER

ME, MFA

SPIRIT, SPS, STO, UKOM

ASSOCIATIONS, CHAMBERS

COMPANIES

SID BANK, CMSR


6 June 2013 30

Goals I.

• Programme of the Government of the RS for Promoting Internactionalization of Companies 2010-2014

• Action Plan “International Challenges” – on yearly basis

• Supporting Activities (Economic Diplomacy; Informational and Institutional Support, Financial Support), Budget, Indicators, Volumes

• Priority Sectors

• Perspective

• Traditional

• Priority Countries/Markets

• Existing

• Markets with need for repositioning

• New Markets

• High Technology Advanced Countries

• Reconciliation of Work and Needs of all Participators

• Strategic Council fo Internationalization (Chambre of Commerce)


6 June 2013 31

Goals II.

• Harmonized performance of all government institutions in the field of

international directing and promotion of the Slovenian economy

• Increase in Slovenian export growth

• Increase in new market entrance by Slovenian companies

• Increase in share of total export to selected markets

• Increase in number of exporters outside SEE and EU

• Increase in recognition of Slovenia as good location for foreign

investments; decreasing obstacles for FDI

• Increase in inward FDI to the level of 33% of BDPICPE - NIFM International Training programme - SID Bank, Ljubljana, Slovenia

6 June 2013 32

Academy of Internationalization


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Contents




4. Export Financing



7. Impact

8. Future Role


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Financing facilities provided by SID Bank include:• Loans (incl. suppliers’ credit, buyer’s credit, syndicated

loans) • Project financing • Purchase of receivables • Acquisition of assets• Risks participation and guarantees• Mezzanine financing (in preparation)

Main characteristics:• Long-term financing• Multi-currency financing• Variable or fixed interest rate• Individual approach

Financing


Promotional Export Financing

Supported Export Projects and Outward FDI (2008-2012)

70 projects in total sum of 460 mio EUR2 projects with ODA included EU regulation – limitation; WTO and OECD Rules

INSTRUMENTS (for export companies financing, foreign buyer financing, investors investors

• Ensuring favourable long-term funds to domestic commercial banks (for export purpose)

• Coffinancing with commercial banks

• Direct lending to foreign buyer or foreign bank

• Outward FDI financing

• Credit lines for acceleration of Slovenian export

• Financing in combination with ODA

• In preparation: export credits refinancing

OTHER SUPPORTIVE FORMS

• In the frame of the Action plan on internationalization

• Cooperation with diplomatic – consular net

• Bilateral cooperation with other stakeholders

• Correspondent net of foreign banks and cofinancing with third countries banks


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Contents




4. Export Financing



7. Impact

8. Future Role


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Insurance I.

Insurance services of SID Bank include:• Medium/short term export credit (re)insurance against

commercial/non-commercial risks.• Investment insurance against commercial/non-commercial risks.• Insurance of banking guarantees, linked to export transactions• Interest Rate Equalisation Programme (IREP).• Other transactions on special authorization

For the account and on behalf of RS (non-marketable risks)*

For the account and on behalf of SID-PKZ (marketable risks)Insurance services of SID-PKZ include:• Short term export credit insurance against commercial/ non-commercial risks.• Integral Risk Management

*Risk of the nature and level for which private (re)insurance market lacks either willingness or capacity to cover.


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SID Bank Group – Business insured (EUR million)

Insurance II.


Export Coverage

6 June 2013 39

SID EDC CESCE COSEC ECGC Euler Hermes EKF OeKB SACE Finnvera0

5

10

15

20

25

PEER Comparison

%*

*

Source: Berne Union

*

* Activities in more countries; SID Bank = only Slovenian exports


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Volume of Business – State Account

mio €


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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 11/2012

20,000

40,000

60,000

80,000

100,000

120,000

140,000

Cash flow Cumulative cash flow Contingency reserves

Cas

h F

low

(00

0 E

UR

)

Co

nti

ng

ency

Res

erve

(00

0 E

UR

)

Cash Flow and Contingency Reserves


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Business cycle – export credit insurance (OECD - 2g+)

Source: OECD


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Contents




4. Export Financing



7. Impact

8. Future role


Claims Insurance

6 June 2013 44

WHY TO INSURE?• Risk Management - Business Philosophy• Sales Multiplying - Existent and New

Buyers• Favourable Financing Conditions - Assignment of

Insurance Rights to Commercial Bank

WHAT TO INSURE? OBJECT OF INSURANCE:

• Claims on open account with payment terms up to 180 days (exceptionally up to 360 days)

- to foreign buyers - to domestic buyers

INSURED RISKS:

• Permanent insolvency or bankruptcy of the buyer

• Protracted defaultICPE - NIFM International Training programme - SID Bank, Ljubljana, Slovenia

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Claims Paid (SID-PKZ)

Paid claims (mio €) and y-o-y change


Services:

• Out-of-court debt settlements• Assistance with legal procedures abroad• Credit reports, monitoring

Global Appearance:

• Cooperation with debt-colection agencies all over the world• Special emphasis on SEE

6 June 2013 46

Debt Collection


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Factoring

• Factoring is a financial service that makes possible to seller:

- financing (80% - 90 % - 100 % of the claim),- claims insurance (100 %),- bookeeping (open items, received payments, delay and

administrative monitoring of claims),- Monetization of claims (repeated remining and debt

collection).

Factoring is flexible and state-of-the-art financial service, which offers companies of all sizes and industries sollutions with doing business with deffered payments on local and foreign markets.


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CMSR:• Non-profit institution in the frame of SID Bank Group,

which offers wide range support and promotion of Slovenian export

• According to the Law on International Development Cooperation and government resolution CMSR is authorized for performing a part of technical-operative activities under international development cooperation

• Central institution in Slovenia for country risk evaluations and information about foreign markets (market and sector analyses)

• Business portal offers all needed information about Slovenian Business environment in english (www.poslovniportal.si)


CMSR enables grants for investment projects in ODA recipient countries (as a rule up to 30% of the project with grants and concessional loan in cooperation with SID Bank if needed)

CRITERIA FOR ODA ALLOCATION:•ODA recipient country (OECD standard)•Partner country of RS•Final recipient is a public institution •Development project (commerxialy non-viable)•Priority sector (environment protection, energetics...) •Transfer of knowledge or technology

Performing bilateral development cooperation in the form of official development aid (ODA)


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Contents




4. Export Financing



7. Impact

8. Future role


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Global appearence

Supported export in red countriesSupported export in red countries

Supported Export in 115 countries Supported Export in 115 countries


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SID Bank Group Impact

34,54 bn € of sales

13,86 bn € of GDP

15,53 bn € of export 84.000 new jobs

Source: Independent study, Faculty of Economics

(2007-2010) (2013)

9,03 bn € of sales

3,63 bn € of GDP

4,12 bn € of export 21.800 new jobs


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Contents




4. Export Financing



7. Impact

8. Future role


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SID Bank in the Future

2030

A new development model RS - Financial Pillar SID Bank:• One Stop Shop: integration /

consolidation• return assets / grants - sustainable

lending• horizontal objectives• quality and sustainable

development

2011 2020

The slovenian economic

crisis

2000 2007

Regional Development Institutions

in RS

2010

Changes / EU entry

The intern. financial and

economic crisis


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The transformation factors:• Combining resources• More favorable financing

conditions• Provision of long maturity• Adjusted funding

instruments• Targeted promotion of

sectors areas• Synergies within the group

SID fin. institutions

SOURCES OF ASSETS

Banking sources• Unions• Promissory notes• Bonds (domestic

Eurobonds)• Other

Special banking sources

EIB• CEB• KfW

Possible to combine with fiscal resources:

• EU funds• State budget

SID Bank – future role

A D D E D VA L U E R E A L I S AT I O N O F D E V E L O P M E N T P R O J E C T S


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Sustainable Lending

Future as a consequence of past decisions

Selection of priorities and projectsLong term vs. short term view

RESPONSIBLE LENDING IS SUSTAINABLE LENDING


Basic principles Responsible Lending

Accessible, honest and understandable informationAffordability, Accountability

An in-depth risk assessment (in particular credit rating)

Verified cash flow,income and assetsImprovements in assessing credit worthiness

Improved disclosure Adaptability to changing circumstancesDifferent collateral options


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The sustainability web


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DFI Role in Future

BORROWER SIDE

LENDERSIDE

NEED OF SUSTAINABLE FINANCEwith:

Special assessment &Careful review

Of

CompanyIndustryCountry R

ISK

DFI should play important role to:1.Overcome credit crunch2.Financial crisis3.Reduce risk4.Reduce financial costs5.Promote sustainable development


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Thank you for your attention!

www.sid.si


Sid bank lecture

Economy & Finance

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