Banks Not Doing Enough to Help Exporters

EghtesadOnline: Head of the Export Guarantee Fund of Iran has criticized the poor performance of banks in supporting export-based companies, recalling that robust financial support for export companies is critical in the climate of hostile US economic sanctions.

News ID: ۷۸۵۳۹۳

16 February 2020

Afrouz Bahrami said banks and credit institutions barely allocate 2% of their funds to help businesses involved in exporting goods and services, the EGFI website reported.

CEO of the main export credit agency underlined the urgency to boost the non-oil export sector at a time when the domestic economy is saddled with unprecedented US economic restrictions, according to Financial Tribune.

Due to the banking sanctions, lenders’ capacity to undertake export risks by issuing letters of credit is limited, she concurred, adding that the lenders can and should boost non-oil exports by providing funds to export companies.

The US imposed a new round of sanctions on Iran last year after withdrawing from the landmark nuclear deal it signed with Iran and five world powers in 2015.  The sanctions are aimed to choking Iran’s oil exports, the lifeline of the economy.

Pointing to delays in implementing a new plan for assisting non-oil exports announced recently by the government, Bahrami said three measures have been outlined, namely withdrawal from the National Development Fund of Iran, opening credit lines, and loans for the promotional activities of exporters.

The support measure was announced last year, but according to data provided by the Trade Promotion Organization, the government has been unable to make all the resources available.

As per the guidelines announced by First Vice President Es’haq Jahangiri late in January, the package includes 20 trillion rials ($146 million) in funds taken from the NDFI, Iran’s sovereign wealth fund.

The funds are to be given to eligible exporters via designated banks during a two-year period. Average interest rate on NDFI loans will be 11%.

As part of the supportive package, banks are obliged to open credit lines up to €2 billion, which Bahrami said has so far remained untapped, apparently due to the tough banking restrictions.

The third part of the plan includes 7.8 trillion rials  to help export companies participate in international exhibitions, open commercial centers in target markets and promote their goods.

Need to Increase EGFI Capital

The EGFI’s capital is $100 million, which is way lower than international standards, according to Bahrami. As per global norms, export credit agencies should cover export risks up to tenfold of their capital.

“Currently, the EGFI covers about $3 billion of export risks, which is far above our capital. This means the risks we undertake are 30 times over and above our capital,” she said.

The credit agency is set to increase its capital by €100 million (about $109 million) in the next (March 2020-21) budget and is struggling to increase this amount to enhance performance.

Funds are to be sourced from the NDFI. If approved by the Majlis, EGFI capital will rise to €200 million. According to Bahrami, the EGFI’ minimum capital is expected to be equal to 1% of total exports. She stressed the need to raise capital to €500 million.

Iran’s non-oil exports reached close to $40 billion, according to official statistics.

The state-owned export credit agency, affiliated to the Ministry of Industries, Mining and Trade, is in charge of promoting non-oil exports by providing local companies export guarantees and insurance to cover risks.