Small and medium-sized (SME) exporters are to reap the benefits of a new alliance between Hang Seng and the Hong Kong government-owned Export Credit Insurance Corporation (ECIC).
Under an Export Finance Insurance Policy signed between Hang Seng and ECIC, the insurance agency will insure the bank against losses arising from non-payment by exporters post shipment. ECIC will indemnify the bank up to 90% of the losses incurred due to buyer risk and risks associated with a particular country. The project has been named Export Ease.
"Exporters need not come to us," says Joyce Yan, deputy general manager of ECIC. "Hang Seng will buy insurance from ECIC based on the finance they afford to exporters." The cost of the insurance is then passed on to the exporters in the form of a service fee, or administration fee. Jacqueline Kam, spokeswoman for Hang Seng Bank, does not expect that the fee will exceed the premium an exporter would normally pay if it undertakes the policy itself. Furthermore, "exporters will save time and costs in administration because the bank will handle those matters," says Kam.
The benefit for Hang Seng is that under Export Ease, the bank is put in total control of the risk. "The bank need not worry if the shipment is covered by insurance or not," says Yan. But while the bank will take into account the insurance coverage by ECIC, Hang Seng will still adopt the usual credit assessment criteria for exporters applying for finance under the new service.
Changing the face of credit insurance
Export credit agencies experienced a surge in popularity during the financial crisis. In 1996, ECIC underwrote HK$17,612 million ($2,259 million) worth of exports. By 1999 that figure had grown to HK$21,325 million. "Although the Hong Kong economy is now picking up, ECIC's recent growth still far exceeds that of the Hong Kong economy," says Yan of ECIC.
Keen to capitalize on the momentum of change, ECIC has launched a number of programmes, other than Export Ease, aimed at encouraging SME exporters in Hong Kong. Yan attributes the ECIC's focus on SMEs to the impressive financial hardiness of the smaller surviving exporters and the government push to support SMEs, which make up approximately 98% of businesses and 60% of the workforce in Hong Kong.
These programmes are also aimed at raising the profile of ECIC among banks. "Although in the past banks were willing to recognize and finance exporters with an ECIC policy, the degree of recognition would vary between the banks," admits Yan. "They would still ask for additional security from the exporter, sometimes up to half of the financed amount."
Under another ECIC initiative, Wing Lung Bank and Dao Hang Bank have agreed to provide trade finance to exporters without additional security where the exporters are underwritten by ECIC. Exporters will assign ECIC claims benefits to the bank, and exporters are able to secure up to HK$3 million in finance without additional security.