Ministry of Economy calls on banks to support Ukrainian exports through ECA mechanisms

Insurance of 24 loan contracts for UAH 70 million has been financed

The Ministry of Economy calls on banks to support Ukrainian exports of goods, works and services during the war, using the products of the Export Credit Agency (ECA). The ministry reports about it.

The Ministry, together with the National Bank, developed a mechanism that allows issuing affordable loans for the implementation of export contracts without collateral under ECA insurance coverage.

The agency launched the portfolio insurance mechanism for loans issued for the export contracts execution in June 2022. Today, financial support for export-oriented businesses is provided by Oschadbank, Ukrgasbank and Ukreximbank. As the first deputy prime minister – Minister of Economy Yulia Sviridenko noted, they have already financed the insurance of 24 loan contracts for UAH 70 million, which made it possible to export UAH 323.5 million.

The program provides:

• insurance of loans under export contracts in national or foreign currency in the amount up to UAH 20 million for 1 year;
• issuance of a loan under the terms of the state program «Affordable loans 5-7-9»;
• the use of the loan solely for the fulfillment of foreign economic activity contract.

The main task of the ministry during the war, according to Yulia Sviridenko, is to restart the economy.

“In the first half of the year, we have a 24% drop in exports. Therefore, we are now working on stimulating export operations. I really want commercial banks to help in this and instead of investing in NBU (National Bank of Ukraine) deposit certificates, they should invest in lending to the real sector of the economy,” the Minister of Economy noted.

The government proposes to support business through the mechanisms and products of the ECA, which will help insure risks for banks. The Cabinet of Ministers and the agency expect that the program will include all financial institutions without exception.

As Igor Guzhva, the chairman of the CMD-Ukraine board, told GMK Center, the integration of ECA tools with the government’s interest rate compensation program on loans (5-7-9) to provide loans against export contracts is positive news. These are practical manifestations of the tasks for which it was created in 2016. In these six years, while the financial basis was being formed and by-laws was being adopted for the agency, almost its only instrument was export contact insurance. However, it was not in great demand. Domestic exporters worked mainly in markets where there are no political and economic risks, in particular in the EU. And the vast majority wro worked with riskier markets, never used the services of the ECA due to bureaucratic restrictions and institutional failure.

According to the expert, attracting loans through the 5-7-9 program secured by ECA’s authorized capital is almost the only option for businesses to get a loan for production. During the war, lending to exporters secured by their own authorized capital or production assets is perceived by banks as highly risky, and the NBU’s setting of a discount rate of 25% made it virtually impossible for exporting producers to receive bank financing.

However, according to Igor Guzhva, there are a number of negative aspects that need to be corrected without delay.

“Firstly, UAH 20 million for up to a year is a small amount, so we are talking about small volumes of exports, and not about a business that can conclude more significant contracts, in particular, the export of engineering products.

Secondly, loans under the 5-7-9 state program involve small and medium-sized businesses, and in fact only a tenth of this program falls on small industries, and mostly on importers and bank refinancing. That is, the industries that create jobs, pay high taxes, generate foreign exchange earnings, unfortunately, are not yet discussed.

And finally, these are the requirements of the ECA itself. For example, if we consider insurance contracts, then there were few of them, since high conditions were put forward, such as an audit by international organizations. These requirements were difficult to fulfill. That is, the agency is looking for the perfect business. The same situation may be with the lending of export contracts secured by the ECA. The export credit agency enters the process twice. First, it acts as an insurer of the contract, and then it acts at the stage when the business applies with the insured contract to the bank, where they make a decision on granting a loan secured by the ECA,” explained the chairman of the CMD-Ukraine board.

As GMK Center reported earlier, Ukraine expects to receive an additional $12.3 billion in financial support from the United States. This was announced by Danylo Getmantsev, chairman of the Verkhovna Rada Committee on finance, tax and customs policy. The draft law will soon be sent to the House of Representatives for consideration and the signature of the US President.