How the recent Government decisions about the New Zealand Export Credit Office affect exporters, banks and trade credit insurers.
After an in-depth review of NZECO in 2010, the Government recently announced decisions and changes to the NZECO operations which are timely and positive. These changes enable the NZECO to continue to support exporters, banks and trade credit insurers where there are market gaps in trade credit insurance and trade finance. It also brings us closer to the international best-practice of other Export Credit Agencies (ECAs).
The following outlines key decisions made and how they affect exporters, banks and trade credit insurers.
The NZECO current form of operation will continue until June 2014
This decision means that the NZECO will continue as an operational unit in Treasury, selling a range of trade finance guarantees and trade credit insurances to exporters and banks.
It will continue to work closely with other government and non-government stakeholders to assist export growth.
Where there is a market gap, the short-term trade credit insurance (guarantee) product will continue to be offered until June 2014
This will enable:
- Exporters to seek trade credit insurance from the NZECO for creditworthy international buyers if they have been declined cover by the private trade credit insurers, or where the private sector insurers have reached limits on countries, sector or buyers. Additionally if an exporter (typically SME's) have received unreasonable terms from the trade credit insurers then we can consider providing cover.
- Banks to use the NZECO guarantee to confirm letters of credit from international banks for which they have limited or no appetite.
- Trade credit insurers to seek co-insurance from the NZECO to assist exporters get greater limits on foreign buyers (where the private sector has limited capacity). *Note not all trade credit insurers are participants to the NZECO top-up arrangement.
Maintaining NZECO's $740m facility size
This enables the NZECO to continue to have a reasonable sized facility to support exporters international trade transactions in the coming years.
Removal of the maximum product limits
The removal of maximum individual product limits means the NZECO will no longer require Government approval every time a facility limit is reached. Prudential operating limits are still applied to ensure the NZECO manages risk appropriately in line with ECA best practice.
NZECO can now underwrite transactions entered into by NZ companies subsidiaries domiciled overseas
This enables the NZECO to consider supporting New Zealand firms who have foreign domiciled subsidiaries, if these subsidiaries enter directly into contracts with foreign buyers. For example, a Malaysian subsidiary of a NZ firm may enter into a contract with a Malaysian buyer offering them 2 year credit terms, or there may be a performance bond to be provided by the exporter. The NZECO can now consider underwriting the credit terms or bonding requirements between the Malaysian subsidiary and Malaysian buyer as long as the transaction meets our NZECO criteria.*
The NZECO can now credit insure up to 95% of commercial and political risks for export credit guarantee and short term trade credit guarantee transactions
This brings NZECO into line with many other ECAs' throughout the world and may also enable banks to provide increased trade finance to exporters. Previously we were restricted to underwriting 90% of the commercial risks of an export transaction.
Renaming the Advisory Board to NZECO's Technical Advisory Committee (TAC)
This is purely a name change only. The role of the TAC is to continue to provide advice to Treasury on individual transactions and operational matters of the NZECO.
*The NZECO's key criteria still remain, including transactions supported requiring a minimum of 30% NZ content, creditworthy buyers or exporters, supportive bank (if applicable) and to meet OECD, WTO, and New Zealand Trade Policy guidelines.
For further information about the range and application of the NZECO's products refer:
If you have any additional queries please contact the NZECO staff on 04 917 6060.