Buyer credit, discounting facilities

The classic buyer credit facility has been applied is order to finance the purchases of goods and/or services supplied under a commercial contract concluded between the Hungarian exporter and a foreign buyer, and is typically secured by MEHIB insurance policy (type V).

CREDIT AMOUNT

Typically a minimum of EUR 1 million. In transactions exceeding EUR 20 million, Eximbank usually provides the credit in a co-financing arrangement with the involvement of commercial bank(s).

CURRENCY

EUR or USD

TENOR

Depending on the terms and conditions of the related commercial agreement, and determined based on the rules of the OECD Arrangement. Tenor of less than two years is principally available for financing agricultural or relatively small-value manufacturing industry export transactions.

INTEREST BASE

Fixed at CIRR (only in the case of tenor over two years), or floating, based on EURIBOR or CME Term SOFR in case of USD financing.

THE EXTENT OF FINANCING

In the case of financing facilities offered with a tenor exceeding two years at fixed CIRR interest, under the OECD Arrangement a maximum of 85% of the foreign trade/general contracting agreement may be financed. A minimum 15% advance must be paid by the buyer at the start of performance. Local costs may – subject to individual appraisal – also be financed in part.

CERTIFICATE OF ORIGIN

For export transactions financed or guaranteed by Eximbank it is necessary to certify the Hungarian origin of the product and/or services constituting the object of the transaction.

Eximbank undertakes the provision of buyer’s credit with project risk on the basis of an individual appraisal. The purpose of the facility is, with the financing package offered in relation to main contractor’s agreements concluded between Hungarian main contractors and foreign procurers, to improve the competitiveness of Hungarian main contractors and help them to win orders for the implementation of complex projects in foreign markets.

As a part of the facility, which is  covered by MEHIB insurance (Facility V), Eximbank provides funds to the project company established by the foreign partner to implement the investment, for the fulfilment of the payment obligation arising in relation to a project implemented abroad by a Hungarian main contractor. The credit is repaid out of the income from the completed investment.

PREFERRED TRANSACTIONS AND FOREIGN MARKETS

Eximbank typically participates in the financing of transactions where both the Hungarian main contractor and the foreign partner (the owner of the foreign project company) have the financial background and industry experience necessary for the successful implementation of the project. An important prerequisite is that the project should have a stable cash-flow generation capacity that can be forecast for the tenor of the loan, and which derives from a small number of suitably creditworthy project beneficiaries. Eximbank makes its financing decision – with the involvement of MEHIB and independent consultants – based on an assessment of the risks of the project’s implementation and operation, and the extent to which the projected cash flow (financial model) serving as the source of repayment of the credit is substantiated.

Interbank Buyer Credit is granted for the financing, indirectly through the buyer’s bank, of the purchase of goods and/or services supplied under a commercial contract concluded between the Hungarian exporter and the foreign buyer, and is usually secured by MEHIB insurance policy (type V). In this financing structure, Eximbank provides credit to the buyer’s bank, which lends it to the buyer.

CREDIT AMOUNT

Typically a minimum of EUR 1 million. In transactions exceeding EUR 20 million, Eximbank usually provides the credit in a co-financing arrangement with the involvement of commercial bank(s).

CURRENCY

EUR or USD

TENOR

Depending on the terms and conditions of the related commercial agreement, and determined based on the rules of the OECD Arrangement.

INTEREST BASE

Fixed at CIRR.

THE EXTENT OF FINANCING

In the case of financing facilities offered with a tenor exceeding two years at fixed CIRR interest, under the OECD Arrangement a maximum of 85% of the foreign trade/general contracting agreement may be financed. A minimum 15% advance must be paid by the buyer at the start of performance. Local costs may – subject to individual appraisal – also be financed in part.

CERTIFICATE OF ORIGIN

Certification of the Hungarian origin of the product and/or services constituting the object of the transaction is required.

In addition to the traditional export credit agency-financed facilities, as an alternative solution, Eximbank also offers forfaiting to its customers. Forfaiting means the purchase, without recourse, of bank-guaranteed receivables from export sales, transforming a deferred-payment transaction into a prompt-payment one, and thus relieving the exporter from the

• commercial,
• country (political and transfer),
• exchange rate, and
• collection

risks arising from the receivable.

The export receivables must be embodied or guaranteed by an unconditional, irrevocable banker instrument (e.g. deferred-payment letter of credit, bank guarantee). If the bank concerned is acceptable, there is no need for any additional securities. The transaction can be concluded quickly and requires only simple documentation, so there are no substantial administrative and legal costs.

The trends of recent years show that it is increasingly difficult for Hungarian exporters to enter into arrangements with their customers under which the latter provide a bank guarantee or deferred-payment letter of credit as security for the deferred payment. It is with these situations in mind that Eximbank and MEHIB offer their joint short-term receivables purchase facility in which the insurer provides insurance (Facility C for the exporter, and Facility CF for the bank), and the bank purchases the receivables with this insurance serving as security for the transaction.