Cover Your Assets
Choosing A Global, Local or Regional Bank When Credit Insurance Is Involved
Wheeling Truck Center in Wheeling, West Virginia, started exporting almost by accident in 2010 when operations manager Chad Remp checked a box on the back end of the company website, allowing it to accept international orders for truck parts.
“We started getting a few small orders,” says Remp. “Around the same time, we stumbled upon the U.S. Commerce Department’s Commercial Service.” That hookup resulted in Remp participating in a trade mission to Brazil and Peru that same year, and now the company has found a niche exporting the truck parts of several manufacturers to locations without manufacturers’ parts available.
“We sold into 50 countries the first year we started exporting. Today we sell to more than 100 different countries all over the world.”
Remp declined to disclose financial figures for the 80-year-old, family-owned truck dealership, but allowed that more than half of its parts line of business is sold overseas and that those international sales total in the millions.
To transact internationally, Wheeling Truck has relationships with several banks, including sizeable local and regional institutions, and a national bank which it relies upon to provide credit against accounts receivable. But those banks won’t add international receivables to the mix unless they are insured and, for Wheeling Truck Center, that means applying a credit insurance policy from the Export-Import Bank of the United States (Ex-Im) to those export sales. Since Ex-Im has yet to be reauthorized by the U.S. Congress, the future of some of Wheeling’s export sales is in jeopardy.
“We have priced credit insurance in the private market and unfortunately the minimum amount is too extreme for us to afford,” says Remp. “We will probably lose some customers because we won’t be able to offer open terms without the Ex-Im policy.”
Might Wheeling Truck Center have better luck dealing with a global financial institution?
“Whether a U.S. exporter should deal with a local, regional or global bank depends on what kind and size of exporter you are, and the kinds of markets you are selling to,” says Piers Constable, head of the Americas, Structured Trade & Export Finance at Deutsche Bank.
“If you are selling to sophisticated markets then perhaps the globality of the banks you work with is a little less important.”
Constable works with U.S. companies exporting to emerging and developing markets. “We provide large, complex financing solutions on big infrastructure and equipment supply projects,” he says. “In that environment, it is crucial that the banking partner of the exporter be able to support the structuring of the financing as well as the decision making and approval processes in the buyer’s country.”
The challenge that a smaller U.S. bank might face may not be around the structuring of the financing product, notes Constable, but that they be less keen to take exposures in risky markets. “In the challenging markets where we work—for example, Central and Latin America and Africa—smaller U.S. banks may not have great understanding,” he says.
Deutsche Bank works with other parties, including Ex-Im, to manage risks. “We also work with other institutions, such as private-market insurance companies, that take exposures in emerging markets,” says Constable. He has seen a recent trend of spreading the risk of the deals among more entities—investors like insurance companies and pension funds that are interested in taking those kinds of asset positions.
Remp doesn’t blame banks for taking a jaundiced eye toward international receivables. He attributes their attitude to the regulations to which they are subject. “They have to convince their regulators that they are not taking on overly risky transactions,” he says.
“Banks are subject to stringent regulatory requirements, including compliance, Know Your Client, and Anti-Money Laundering provisions,” adds Marcel Rokach, director of Global Solutions at RBC Royal Bank. “We need to be mindful that the overall process of selling abroad will continue to be a complex one.”
Rokach believes that as trade systems develop, larger banks will be able to provide more services to smaller exporters (See sidebar, “Three Questions with RBC Royal Bank”). But for Constable, the big banks want to provide long-term lending to projects where they can add the most value. “It will be harder for mid-market and smaller exporters to access this kind of capital,” he says, “because banks want to focus their resources on their larger core clients.”
For Wheeling Truck Center to continue to export without Ex-Im backing, it will have to demand payment in advance or letters of credit instead of offering open accounts. Remp projects that Wheeling Truck will lose 30 percent of its export sales if Ex-Im is not reauthorized.
Chinese Banks Low On Gold Reserves. Maybe.