The export-finance market in the Nordic countries is undergoing substantial changes, triggering market players to re-evaluate their involvement in the field.

The most obvious development is strong liquidity among banks, affecting all areas of commercial banking, from loan syndication to trade financing. Every export-finance mandate is fiercely contested, with, for instance, a Brazilian pulp and paper company attracting bids from more than ten banks to finance deliveries of machinery from Finland and Sweden, and a Russian telecom operator raising the stakes from five bidding bank groups. The Nordic area has long been less competitive than the French or English market, for instance. European banks have, however, progressively increased their focus on Scandinavia and Finland, and now there is a feeling that too many players are trying to increase their share of a stagnant market.

The other major development is that emerging markets haven’t seen a major crisis for a number of years. Banks are making provision write-backs and credit-rating agencies are regularly upgrading country and company ratings, raising the confidence level on new lending.

The result is severe pressure on arrangement fees and margins. It also means banks are holding larger amounts, reducing the need for syndication or club deals. Since fewer banks are involved in a given transaction, but with larger stakes, the reliance on a few large deals has also increased.

The traditional role of export credit agencies (ECAs) might also be at a turning point. The historical emerging markets corporate borrowers, mostly telecom operators and pulp and paper producers as seen from a Nordic angle, are increasingly professional. The financials they can display allow them to source their funding directly, rather than requesting their suppliers to arrange it through export credits.

The private insurance market is also becoming a real alternative to ECAs, rather than a complement. For transactions with relatively simple structures and documentation, the premium level is the key differentiator for banks competing on thinly priced transactions.

Nordic ECAs are, however, actively looking at ways to adjust in order to stay competitive and provide added value. One way is to widen the concept of ‘country interest’ or ‘value of content’, instead of strictly considering the amount of deliveries from the ‘country of origin’. Another is to lower the level of political cover to that of the commercial cover in order to reduce the premium. This is particularly efficient since banks tend to give little value to the part of the guarantee covering political risk only. This in turn comes from the perception that pure political risk is seen as more remote than it used to be in most emerging-market countries. The approach to pricing taken by Nordic ECAs can also be more business like, especially in cases where OECD consensus rules do not dictate minimum premiums. As a result, transactions with borrowers in industrialised countries have been made possible.

Other developments have not been welcomed by banks. For instance, Finland’s Finnvera is regularly offering a 100% comprehensive cover on the best emerging market corporate risks, where commercial banks would be eager to also take a substantial amount of residual risks. The resulting pricing for the lending bank tends to be very thin, and hardly justifies the work and operational risk involved. Another example is Danish ECA EKF, which increasingly regards itself as an arranger of export credits, not just a guarantor. The risk is that it blurs the respective roles, not least towards the exporter and the borrower.

Banks might not be totally happy with the above development, but they are unlikely to be able to influence it, given their very strong appetite for new assets.

From the exporter’s point of view, export finance is less crucial to sales than it used to be. For instance, the major telecom-equipment manufacturers have a much lighter customer financing organisation than a few years ago. Since the number of core-relationship banks has been reduced, a clearer sharing of the business on offer is taking place. And a given bank will be awarded a certain percentage of the export-finance business, or special market areas, in line with their market share on other bank products. Exporters may also request some of their relationship banks to team up with each other on certain deals or customer-financing schemes.

All in all, export finance in the Nordic countries is no longer a routine business, where a classic ECA-covered buyer credit would be the solution to most cases. Instead, all players need to pay constant attention to trends and how to adjust to them.

Jean-Francois Tapprest is head of export and project finance at Nordea in Helsinki