Article from the Independent - Credit where credit's due: Government moves in where the banks fear to tread - 9 April 2010

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NZECO has received permission from The Independent Business Weekly to reproduce this article on the NZECO website.

9 April 2009
The Independent Financial Review
(c) 2009 The Independent Business Weekly

Getting money from overseas customers has never been tougher. No-one is handing over money on delivery and lead times for paying invoices are getting further and further out, but it is getting harder to fund the wait before companies get paid. New Zealand banks worry that foreign buyers or banks will default, and they are suspicious of overseas opportunities.

Export New Zealand chairman Ken Stevens says he is hearing complaints from around the country about an acute shortage of credit, which he says is stopping New Zealand companies from doing business.

Stevens' says average payment times from overseas customers at his automated baggage-handling company Glidepath have stretched from 48 days to a now standard  70 days.

He is managing to get bridging finance, he says, but others are frustrated dealing with banks.

"The banks are taking their sweet time getting back to people, whether or not there is a deal. Branches are having their decision-making curtailed, with these new committees at head office. Nobody is being told what is happening. Exporters are being hung out to dry."

Stevens has heard banks blame the Government's Export Credit Office (EEO) for holding up guarantees and bonds. While he suspects the office is struggling with the number of applications, even finance deals without an ECO guarantee seem to take an eternity, he says.

ECO senior underwriter Carmen Moana says her office has taken on three new staff to deal to the rise in volumes across its products.

Awareness has been building about the new Short Term Export Credit Guarantees, Moana says. These guarantees, given for up to 360 days, were launched in February. By the end of March, the office had 20 applications for backing for some $52 million of credit.

Under the scheme, the ECO backs foreign banks' letters of credit for less than 360 days. It is topping up cover from commercial trade insurance operators, who won't look at certain industries or countries because of tighter global guidelines.

"The short-term [private] trade insurance credit market is not working so well," says Moana.

For new or small exporters, the ECO acts as insurer of the last resort. Small and medium-sized enterprises in food or other agricultural products are now applying so they can offer open accounts (payment on credit) and better terms. The application fee is either $500 or 0.1 per cent of the credit amount. "We have exporters saying to us: '[The banks] are just not lending. Maybe you should lend as well.' But what we want to do is get in there and be timely and provide support that can get money flowing again."

Moana knows Treasury can't set up a bank in the timeframe that the exporters need the help.

Stevens doesn't expect the Government to take on a lending role. He describes the short-term guarantee package as "well received and well intentioned". And he is pleased the office is moving beyond its role as state backer of a few offshore capital projects. "It's a huge thing, assisting the banks by giving guarantees."

So is the banks' heightened anxiety about overseas markets a justifiable excuse for withholding credit from exporters?


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