Hermes Cover: High growth again in the first six months of 2010
21 July 2010
- Amounts covered 40 % higher than previous year level
- Strong demand for cover of marketable risks
- Positive result for the Federal Budget expected at the end of the year
The Export Credit Guarantees of the Federal Republic of Germany (Hermes Cover) registered an extraordinary increase during the first six months of 2010 after recording the highest volume of cover ever in 2009. The volume of newly covered export business was about 40 % up year-on-year at EUR 14.2 billion. A few large-scale projects but also a great many small business transactions contributed to this development.
The list of countries with the highest cover volumes is headed by Switzerland (EUR 1.8 billion) - this is due to the guarantee for the Baltic Sea gas pipeline from Russia to Germany, which is being built by Nord Stream AG domiciled in Switzerland. Russia (EUR 1.4 billion), China (EUR 1.1 billion) and Brazil (EUR 751 million) occupy the following places.
At the end of the first six months of 2010 the Federal export credit guarantee scheme posted a surplus of EUR 349.8 million for the benefit of the Federal Budget accounts.
Export credit guarantees protect companies against bad debt losses for commercial or political reasons. By offering reliable cover they facilitate the financing of export transactions in economically difficult times. "The financial crisis showed in two sectors that state support for export credits is indispensable," explained Dr. Hans Janus, Member of the Board of Management of Euler Hermes Kreditversicherungs-AG. "On one hand major projects requiring long-term financing can often be realized only with an export credit guarantee even in industrialized countries. On the other hand, obtaining cover for short-term transactions in respect of certain branches of industry and some markets in the EU and OECD continues to be rather difficult; here too Hermes Cover maintains its importance."
Since August 2009, many companies have used Hermes Cover for exports on short credit terms to EU and OECD countries ("marketable risks"), which is available for a limited period until the end 2010. Exporters have submitted about 18.000 applications for cover for such risks. But demand for cover of exports to emerging and developing countries remains high too. One reason for that is the increased risk awareness. The volume of short-term cover rose by about 80 % compared with the first six months of 2009.
Export credit guarantees for major projects such as the Baltic Sea gas pipeline have a considerable impact of the amounts covered. Thus the semi-annual report is characterized by transactions on long credit terms. Their share rose from slightly less than a quarter to half of the total cover despite the increase in short-term business. Cover of medium-term transactions with credit periods between one and five years declined.
The consequences of the financial crisis are reflected in the business figures of the Federal export credit guarantee scheme with a certain delay. During the first six months of 2010 claims payments indeed rose markedly compared to the same period last year. However, on the whole they remained on a moderate level. Claims payments for commercial causes of loss such as insolvency or protracted default amounted to EUR 93.3 million; that is an increase of about 40 % year-on-year. In contrast to that claims payments for political causes of loss declined to slightly over EUR 13 million. From today’s point of view the Federal export credit guarantee scheme will generate a considerable profit for the Federal Budget accounts.
The Federal export credit guarantees have been an important instrument of state export promotion in Germany since 1949. The Federal Government has entrusted a consortium consisting of Euler Hermes Kreditversicherungs-AG and PricewaterhouseCoopers AG WpG with the management of the scheme. The safeguarding of jobs by means of reliable protection of the exporting industries from bad debt losses for commercial and political reasons remains the central issue especially in connection with supplies to risky markets.
The semi-annual report of the Federal Export Credit Guarantees 2010 is available on the Internet.