Export finance head interview – Société Générale CIB

Frédéric Surdon, global head of export finance, ~Société Générale CIB^ (SG CIB), in Paris

TXF: What is the present state/ health of the export finance sector, and how is SG’s business line doing?

The global financial crisis challenged the whole industry. All institutions went through a degree of reassessment in the market. Now, all institutions have come to the same conclusion – export finance is very important for development, and is at the heart of what is a client-driven business.The business has been reaffirmed, so the debate is over. As for us, the business line is well. We have gone through the stages where we had to manage the balance sheet, and we went through the deleveraging process which was understood by our partners and clients.

TXF: How do you view competition currently?


Because of the state of the global economy, overall there is less investment and consequently the number of deals is down. Then on the other hand there is considerable liquidity in the market, and institutions looking for good yields. Because of these factors, competition is tough.

 

We do need to open the market to institutional investors. I don’t think the market has been too slow in this respect, but what is required is more education related to the asset class.

Specifically, the Japanese banks are now heavily involved in export finance, and this is on a global basis rather than just related to Japanese ECA business. It is not a bad thing to see additional involvement in the sector, as this helps with the huge projects which require so much financing.

TXF: How is pricing being affected by liquidity and competition?

There is strong pressure on prices all round; and this comes from a variety of sources. And there are many reasons why some institutions will drop prices to try and win deals.We all see this in the market, and where this becomes too excessive it will mean certain institutions have to walk away from the transaction because it does not make economic sense.

TXF: How do you see the relationships now between export finance and other products in the armoury of trade banks? And – what does this mean for the clients?

Export finance is a client-related activity and we work closely with our clients to ensure we deliver the right combination of solutions or products to provide them with what they need. This is a win-win situation when it comes to relationships. There is now a strong correla- tion between ECA activity and project finance. And we can go beyond that where we see LCs, commodity finance and hedging solutions as part of an overall solution. Through our international retail network, we can see the deals from both sides – it is about financing the borrower as well as helping the exporter. More and more, the exporter and the importer are our clients. This is a universal model, and obviously there are synergies there for various products within the bank.

TXF: How has SG been affected by regulation?


Export finance is not a risky businessandwedonotusealotof equity. Our assets are high quality assets. We would certainly like to have more favourable treatment. There is still a lot of lobbying to be done in this regard, and the ICC is working hard on this. It is possible that some changes may still come. On the environmental side, clients do appreciate a bank that has good standards. This is something we can put on the table, and working with SG clients will get that. And when vying for a mandate, our good credentials go in our favour.

TXF: Where do you think SG has a real advantage in the market?

Among several aspects, we have two main competitive advantages. First, we have been a leader in this sector for many years on a global basis, and this expertise is a real bonus for our clients. Second, we can leverage on our global capacity and SG’s network. This is true whether we are looking at our retail or our capital market offerings – as we are able to provide clients with the solutions they need.

TXF: How do you see the ECAs changing in the way they operate?

The ECAs have proved to be very flexible and innovative. And the timeframe that they have had to do this in has been very impressive. Some of the initiatives that have taken place by the ECAs have allowed for a full range of solutions to be deployed within export finance – from short-term through to long-term. What will be necessary in the future will be to keep all these tools for use depending on market conditions.

Some of the initiatives that have taken place by the ECAs have allowed for a full range of solutions to be deployed within export finance – from short-term through to long-term. What will be necessary in the future will be to keep all these tools for use depending on market conditions.

There is still considerable variation among the ECAs. For instance, some are able to be flexible on the 95% cover rule, and can move to say 99% – but this can also be difficult depending on the market in question. US Ex-Im and JBIC are two ECAs that have been able to put a lot of money into their business with direct loans. This has been, and will continue to be important as banks look to control what they have on their balance sheets. So, ECAs have again provided an important additional capacity.

TXF: How important is it for you to move assets off balance sheet, and what comment can you make in relation to new investors in export finance?

We do need to open the market to institutional investors. I don’t think the market has been too slow in this respect, but what is required is more education related to the asset class. We have seen the use of capital markets in the aircraft sector for some time, but this is easier than other parts of the export finance business. Institutional investors managed to get accustomed to aircraft. Direct lending by institutional investors into export finance deals will be more complex.

As a sector, we need to be smart and work out our strengths – and this will allow us to be there for a long time. We are not in a silo and we need to work with other institutions and other products. At the same time, there is no need for us to be drawn into a price war over mandates.

This will require a long-term educational process for investors – in order to properly explain the credit conditions, asset and liability management, etc. With the massive size of some of the major projects around the world, the banks are not able to do all of this themselves – and even with ECA direct lending, there is a requirement for additional investors. At SG we are discussing some of these issues with pension funds and we are confident that we will bring such partners in to select transactions in time. ECAs are open, in principle, to these investors. But of course, this will take time.

TXF: What are the prospects for the sector in the near to mediumterm?


There is a basic need for the international flows of capital equipment to be financed – so from this perspective the sector has a bright future. The question is, will it be done by banks or by other institutions or a combination of these? Things are certainly changing. Institutional investors are not a threat – I see them as partners allowing us to do more business.

As a sector, we need to be
smart and work out our strengths –
and this will allow us to be there for
a long time. We are not in a silo
and we need to work with other
institutions and other products. At
the same time, there is no need for
us to be drawn into a price war
over mandates. It is an exciting
time for the sector, and I am positive about the future.