Operations & Services | Trade Finance | T.F. in brief

Trade Finance Strategy

Role in the Region

Trade forms the basis of most healthy economies, and often underlies positive economic and political relationships between countries. Most of our member countries, however (Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Turkey and Ukraine), do not have export credit agencies (ECAs), and to the extent ECAs exist, they tend to be weak and to lack experience.  To compound the problem, strong banking systems and financial products to support export sectors are lacking.  Consequently, exporting companies in the region are not getting the support they require to grow through trade and effectively compete with companies outside the region that have access to ECA and other financial support.

We believe there is a gap in what the community of International Financial Institutions (IFIs) is offering this region and that the gap lies in the provision of both short-term and medium-term structured trade finance.

By focusing on the delivery of trade finance products to support companies producing in the region, BSTDB is carving a niche for itself in the market among the IFI family.  It is in this context that BSTDB sees itself playing the role of a regional ECA, delivering products and lending support to increase exports and intra-regional trade.

BSTDB Trade Finance Strategy -- Phase 1

Bearing in mind the Bank's perceived role, a two-phased strategy is set up governed by two basic principles: prudent risk management and efficient client service.

Role of Financial Intermediaries in Strategy Phase 1

In the first two years of operations part of the first phase of our strategy has been to identify financial intermediaries in each of our shareholder countries.  These banks, and in some cases ECAs, are acting as conduits through which BSTDB’s short-term trade finance products are being introduced.

From our headquarters in Thessaloniki, Greece it is difficult to effectively market financial products to thousands of small and medium sized companies throughout the region and this is one of the reasons that BSTDB is implementing short-term products through financial intermediaries.  From a risk management point of view it has been prudent to focus on financial intermediaries at this early stage of our existence, since evaluating and monitoring risk on several banks in each shareholder country is a more manageable task than analyzing and monitoring thousands of small and medium sized companies probably lacking International Accounting Standards.  By working through financial intermediaries, BSTDB is supporting and broadening the financial sector, which serves the region well.

Strategy Phase 1 – Introduction of Short-Term Products 

The first phase of our strategy is focused on offering short-term Pre-Export Finance and Buyer Credits through financial intermediaries.  BSTDB decided to focus on short-term products in the first phase because shorter-tenors help improve the bank’s portfolio from a risk perspective.  From a funding perspective, short-term products meet the reality of operating as relatively new entity.

While BSTDB has been signing agreements offering short-term funding, these agreements are signed on a revolving basis, and as such are indefinite, provided repayments are timely and facilities are actively in use.

Introducing one trade finance product at a time helps ensure that from a client service perspective, each product is being delivered efficiently and effectively before introduction of the next one.  BSTDB's commitment is to disburse five business days from the date of a “disbursement application” under an Agreement is taken seriously, and thus far it has lived up to this commitment on 100% of disbursements under existing Pre-Export Finance Agreements. 

Strategy Phase 1 – Pre-Export Finance

Given the strategy for rolling out products one at a time, the Bank decided to introduce the Pre-Export Finance product first.  Pre-Export financing is in great demand in the BSEC region and by providing the working capital necessary for companies to produce for export, this Programme is helping to bring important benefits to the region.

Strategy Phase 1 – Short-Term Multiple Buyer Credit

Now that BSTDB’s Pre-Export Finance product has been successfully introduced, an import finance product has been rolled out, which is actually called (short-term) “Multiple Buyer Credit.  This short-term product, also being introduced through financial intermediaries, is very similar to what ECAs typically provide exporters.  Simply put, it provides financing to buyers of products that originate from our member countries.  This product will help make manufacturers located in the region more competitive, particularly when compared with companies from fully developed countries that have ECA and other financial support. 

It will be beneficial to sign both a Pre-Export Finance Agreement and a Buyer Credit Agreement with the same financial intermediary in order to ensure full use of facility limits.  Both agreements are subject to the same over-all limit provided by BSTDB’s Credit Risk Department, in which case the financial intermediary will be at liberty to use both products at their discretion, provided that the over-all limit is not exceeded.

BSTDB Trade Finance Strategy -- Phase 2

Strategy Phase 2 -- Co-Financing Structured Trade Finance Transactions

The second phase entails the introduction of medium term structured trade finance support.  BSTDB starts looking at direct financing of capital goods. In many cases BSTDB will offer financial intermediaries and other partners an opportunity to co-finance such medium term transactions. (In fact, readers representing financial institutions might consider BSTDB as a co-financing partner for transactions/projects).

For medium term transactions, BSTDB will primarily support capital goods exports/imports.

Strategy Phase 2 – Medium Term Buyer and Supplier Credits Offered Through Financial Intermediaries

These medium-term credits are available through selected financial intermediaries located in BSTDB shareholder countries. Like the co-financing of structured trade finance transactions described above, medium term Buyer and Supplier Credits offered through financial institutions will be used to support the region’s manufacturing sectors, both in importing and exporting countries.  Individual transactions under these medium term facilities apply only to intra-regional trade.

Your contact to discuss areas in which cooperation may be possible is very much welcome.

For any information regarding trade finance, please contact:

Trade Finance & Financial Institutions