ECGD, the UK export credit agency, today launched a letter of credit guarantee scheme to assist UK exporters by boosting the availability of short-term export finance.

In the current economic climate, UK exporters are looking for secure forms of payment from their overseas buyers, particularly those in emerging economies. One of the most secure payment mechanisms for foreign trade transactions is a confirmed letter of credit. Under this a bank in the UK guarantees payment to its exporting customer, provided documents stipulated in the letter of credit issued by the buyer’s overseas bank are presented to it. In this way, the UK exporter is able to eliminate the risk of non-payment by its buyer.  

By sharing with banks the credit risks associated with confirmed letters of credit, ECGD aims to increase the amount of short-term export finance which the banking sector can make available to UK exporters. This is particularly important at a time when the overall risk appetite of the trade market has been reduced due to the recent difficulties in the financial sector.

To start with, five banks – Barclays, RBS, HSBC, Lloyds TSB and Standard Chartered – are supporting the scheme and will be making arrangements in the coming weeks to allow exporters to participate. It will cover 282 overseas banks in 36 export markets. More banks and export markets are expected to be added to the scheme.

UK Minister for Trade, Investment and Small Business Lord Davies of Abersoch said:

“I believe this new scheme could provide real help to UK exporters, particularly smaller companies exporting to emerging markets, which is where letters of credit are most used and where new opportunities can be found.

“Letters of credit are a very well established method of securing payment and an alternative to credit insurance. This scheme should increase banks’ capacity, and is an excellent step forward."

ECGD will share up to 90% of the risk on individual letters of credit.

Notes to editors

ECGD, the Export Credits Guarantee Department, is the UK export credit agency. ECGD works with exporters, project sponsors, banks and buyers to help UK exporters to trade with confidence, by providing insurance against non-payment risks and guarantees for bank loans to buyers of UK goods. It also provides insurance against political risks to UK investors in overseas markets.

To start with the scheme will cover:

Algeria

Azerbaijan

Bahrain

Bangladesh

Brazil

China

Croatia

Egypt

Ghana

India

Indonesia

Jordan

Kazakhstan

Kenya

Korea

Kuwait

Libya

Mauritius

Mexico

Morocco

Nigeria

Oman

Pakistan

Panama

Peru

Philippines

Qatar

Russia

Saudi Arabia

Sri Lanka

Taiwan

Thailand

Tunisia

Turkey

UAE

Vietnam

The scheme will run until 31 March 2011. It will not cover exports to the EU or to Australia, Canada, Iceland, Japan, New Zealand, Norway, Switzerland or the United States. To do so would require EU State Aids approval from the European Commission. Letters of credit are not commonly used in these markets.

For more details of the new scheme contact Steve Roberts-Mee, ECGD’s Head of Communications, on 020 7512 7319 or 07990 887852.