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Lecture VIII
International Credit Market
Lecturer Cristian PUN
Email: cpaun@ase.ro
URL: http://www.finint.ase.ro
Dimension (2002)
Credit Market
Bond Market
Stock Market
Weight
Developed Countries
77 %
Offshore Countries
13 %
Developing Countries
9%
< 1year
53,1 %
56 %
52 %
46,7 %
> 1 year
27,7 %
24,3 %
36,9 %
43 %
Banks
Public Sector
Private sector
Total Credit
46.9 %
11.9 %
38.7 %
Developed Countries
50.6 %
12.2 %
34.5 %
Offshore Countries
38.7 %
0.9 %
59.8 %
Developing Countries
30.1 %
17.1 %
52.1 %
EU Banks
NA
Jap
Others
Total Credit
57.8 %
7.5 %
11.2 %
23.5 %
Developed Countries
57.5 %
6.5 %
10.7 %
25.5 %
Offshore Countries
54.9 %
8.1 %
27.2 %
9.8 %
Developing Countries
62.6 %
14.1 %
9.3 %
14 %
E. Credit Market
(country distribution)
Countries
Weight
US
16 %
EU
54.6 %
UK
13 %
GER
8.4 %
ITA
5.4 %
JAP
5.6 %
Credits in advance;
Export credits;
Syndicated loans;
Eurocredits;
Parallel loans;
Buyer credits;
Seller credits.
Exporter
1
4-5
6
3
Exporters Bank
Government
Importer
2
4
X Bank
Other bank
)
10
1
Importer
Exporter Bank
5
Importer Bank
5
1 Export contract containing a commercial credit granted
by the exporter (the importer will pay at a specific maturity
after delivery);
2 B/E acceptance by the importer bank;
3 Presenting the B/E to the Exporter Bank;
4 B/E discounting to an Exporters bank;
5 Payment at the maturity.
Lecture 8: International Credit Market
11
Exporter
4
Importer
2
Exporter Bank
Importer Bank
5
1 Export contract;
2 B/E Acceptance by the Exporter Bank;
3 Presenting B/E to the Exportes Bank or to other local bank;
4 Discounting the B/E;
5 Payment at the maturity against B/E.
12
E. Credit transfer
Exporter
Importer
1
4
5
Financing
Company
Importers Bank
13
14
G. Line of credit
Line of credit -- An agreement between a lender and a borrower
in which the borrower has access to funds up to a specific
amount during a specific period of time.
- If the funds are not totally used the borrower is submitted to pay
some penalties in the favor of the lender.
15
16
A. Syndicated loans
1
Lead Manager
Beneficiary
Credit Management
Group
3
4
Bank A
Bank B
17
18
B. Eurocredits
3
Beneficiary
Lead Manager
Bank A
Bank B
Bank C
Coordinating
Group
5
4
19
20
C. Seller Credit
5
Exporter
2
Importer
1
6
Exporter Bank
Guarantee bank
21
22
D. Buyer Credit
1
Exporter
Importer
4
6
Exporter Bank
Insurance Company
2
5
Guarantee Institution
23
24
E. Parallel Loans
1
Company A
USD Credit
Credit Contract
Company B
Subsidiary
of B
GBP Credit
Subsidiary of
A
25
26
F. Back-to-back loans
Company B
Company A
Credit Contract
Bank A
Bank B
3
Credit in USD
Credit in GBP
Subsidiary
of B
Subsidiary of
A
27
28
Special Credits
29
G. Leasing contract
Banks
8
1
Leasing company
Importer
2
5
7
3
Exporter
4
Insurance
Company
30
31
32
$100,000
100,000
$200,000
Debt
Equity
Debt plus equity
$100,000
100,000
$200,000
B. Balance Sheet with Operating Lease (co. finances truck with an operating lease)
Truck
Other assets
Total assets
$
0
100,000
$100,000
Debt
Equity
Debt plus equity
$
0
100,000
$100,000
C. Balance Sheet with Financial Lease (co. finances truck with a capital lease)
lease
33
2) Lack of Restrictions
Leases usually do not have protective restrictions.
3) Avoiding Risk of Obsolescence?
Not really - only in cancelable operating leases.
4) Conservation of Working Capital
Leases usually have a lower initial outlay than a purchase.
Importer
2
5
6
Factoring company
Importers Bank
36
Export contract
Delivering the goods
Presenting the commercial documents for payments (invoices)
Paying in advance the presented invoices (less a commission an a
guarantee of 10%)
5. Paying at the maturity
6. Transferring the money to the factoring company
Notes:
- The exporter should pay an interest rate for credit period
- The factoring company will be refinanced by the banks
- The guarantee will be paid back at the maturity and will cover the
default risk
- The factor will administrate ALL the commercial transaction of the
exporter
37
Importer
2
4
5
Factoring company
Importers Bank
38
39
J. . Forfeiting
1
Exporter
2
Importer
4
5
Forfeiting Institution
Importers Bank
40
Export contract
Delivering the goods
Presenting the commercial documents to the forfeiting company
Paying the transaction against presented documents
Transferring the money to the forfeiting company at the maturiy
Note:
The exporter will pay an interest rate
This transaction is used when the Exporter rating is too low and
international market is not accessible for him (the forfeiting company
will be refinanced from international markets)
41
Importers
export pre-financing;
discounting the banks drafts;
credit transfer;
importer / exporter bankers
acceptance;
syndicated loans;
eurocredits;
seller credits;
back to back loans;
parallel loans;
factoring;
forfeiting.
line of credits;
revolving credit arrangements
bankers acceptances;
syndicated loans;
eurocredits;
buyer credit;
back to back loans;
parallel loans;
leasing;
42