Sweden is a country that exports more than half of what it produces; therefore it has developed a first-level export system thanks to the financing mechanisms and guarantees it has developed. How do these mechanisms work? SEK did a presentation in the ALIDE headquarters, in Lima, about some details we summarize next.

The financing system for Sweden exports has five components: exporters, importers, commercial Banks, EKN and SEK. These last two ones are government agencies organized by the Swedish commerce department and have the goal of increasing exports and internationalization of industry from that country.

SEK is the Swedish organism for export credit grants (Swedish Export Credit Corporation), and EKN is the Swedish export credits guarantee board. Both provide credit support to Swedish companies to export.

In the same way as in USA or Japan, the Swedish government has supported the activities of their financial institutions and other industries to support exports and the economic development of their country. In the last years, the action scope of these institutions has increased because the Swedish government has changed its mandate and stopped asking for Swedish content in the exports to finance. Therefore, they are now in conditions to cover financial transactions for goods produced in other countries.
EKN is an agency that provides export credits and that encourages sales overseas though the issuance of guarantees that cover the lack of payment. The agency insures exporters and banks against the risk of non-payment in export operations, in such a way it allows a safer handling of operations.
EKN and SEK have the same objective and goal. Both agencies also consider that the inclusion of a commercial, development or international bank as part of the transaction is the most efficient to make this financing possible. The difference between them lies in that, while SEK grants the loans, EKN insures the credit risk.
After the Lehman Brothers crisis, there is a higher demand for these types of products in the banking system and also between lenders and exporters.
Figure N.1 details how a standard operation works, what aspects it presents and where will EKN and SEK be placed in that scenario. First, we have an importer and an exporter that sign an agreement or commercial contract. EKN can cover the payment of this commercial contract and this is a simple operation. However, sometimes the financer is not the exporter but the commercial bank and in this case, the bank signs a loan agreement with the importer. Here EKN will also guarantee the loan agreement to appear on the buyer’s credit. Also, there are situations in which the bank does not have the capacity to handle the loan or liquidity. This is where SEK comes in, acting as a co-structuring entity, providing the commercial bank the liquidity needed. In this case, the bank will assign the credit and export guarantee to SEK.

EKN has different products that adjust to each process in the operation, be it the sales/negotiation process first and then the production, delivery or credit period, which may cover risks through each process.

This way, we first have a guarantee for work capital special for exporting SMEs, and we also have the counter-guarantee for this product, which is used for different contract guarantees that the buyer may ask the exporter of their product for. The bank is the one that issues this guarantee as a bond according to the contract process.

Once the exporter starts production, there is a risk the buyer cancels or terminates the contract. If this happens, it would be very difficult or impossible to sell the product to another buyer. In this case, a production loss guarantee may be requested and coverage for the risk they incur in after the delivery and during the credit period would be received. This is the main product EKN has, the guarantee for clam loss.

EKN has banking products to cover risk, credit letters or bills of exchange, a whole range of products that provide support for operations.

After the credit evaluation is done, EKN issues a guarantee offer with Premium price and a hedge EKN is willing to assume. Normal hedge fluctuates between 60% and 95%. For central banks, Ministry of Economy or Treasury, it reaches sometimes 100%.
 
Once the exporter receives EKN offer, enters into the contract, delivers it and issues a guarantee; then, the borrower pays. In case this does not occur, the applicant will go to EKN and ask for compensation.

SEK role
Despite global economic scenario, SEK has a very high qualification (rating S&P: AA+ and Moody’s: Aa1). The agency is specialized in international capital market from where funds for operations are obtained through long-term loans.

SEK main role is simple: to entirely focus on offering financing or liquidity to clients and Swedish exporters. It is important that more Swedish exporters have access to SEK competitive financing. For this reason, the agency has established connections with the 300 Swedish bigger exporters. Besides, SEK presence is increasing internationally to improve assistance where clients are, especially in emerging markets. 

SEK tries to secure the access to financing solutions for Swedish exporters. In a good scenario, exporters will have access to the most attractive financing. For this reason, cooperation with banks and other financing institutions will be also important to may offer more competitive solutions. 

This means to secure exporters have access to financing during crisis times. However, it is important to remember SEK financing demand is countercyclical, this means, demand increases in bad moments and decrease in good times.

SEK is a niche operator in the financing market. It works offering loans and as result, it acts as complement to banks. Its independency also means freedom to cooperate with others banks and financing institutions without competing for clients. 

Cooperation and collaboration with others institutions is its strong point to help clients. Along with banks, EKN and others organizations, SEK supplies and agree more attractive solutions and conditions with more advantages for Swedish exporters, more than if they did it individually.

Sweden depends on its exporting industry. It has many companies in several parts of the world, and it results impossible to do it alone with such a small company (less than 200 employees in each one). For this reason, Sweden needs to work with different banks.