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Local importers look to capitalise on euro slide.

Dubai: There is a rush among Gulf-based businesses to source imports from the Eurozone on the most favourable terms brought on by the recent slide in the value of the euro. And local banks -- some of them at least -- are doing their bit to give businesses the instant funding or ancillary support required to make this happen.

The surge in demand for Eurozone-sourced goods has been particularly pronounced over the last two months, say industry sources. This process has also, by extension, led to a groundswell for trade credit insurance as local businesses take ample cover over their Eurozone exposures.

"Currently, there is an increasing demand for funding transactions being conducted around the importers' receivables," said Massimo Falcioni, CEO of Coface Middle East, which specialises in credit-specific insurance covers.

"One way that UAE and Gulf importers are tapping funds from banks is through the aACAydiscounted' process, where ownership of the receivables will remain in the hands of the traders. And in case of non-payments, the credit insurance on the receivables will indemnify the banks involved in that transaction, otherwise known as the aACAyloss-payee' solution.

"At the same time, some of the local banks are directly acquiring the receivables without recourse and taking on any concomitant risks that may be involved. This is what aACAyfactoring without recourse' is about, and the local trading sector happens to be seeing a lot of activity on this count with their receivables.

"These are directly linked to expectations that the strong dollar-weak euro will prevail for the immediate future, and banks are changing their strategies accordingly. In the UAE, Emirates Bank NBD, Mashreqbank and National Bank of Fujairah have been quite active in building up exposures on trade receivables.

"Again, when credit insurance is applied to those aACAyfactored' receivables, banks are suitably protected against non-payment risks, leveraging on credit insurance as a collateral "

Market sources suggest that the UAE and Saudi Arabia could see a marked increase in import volumes from Eurozone during the first half of the year, riding on the soft euro. And these circumstances could be there for long.

The quantitative easing (QE) being overseen by the European Central Bank has been gaining traction, evidenced by falling bond yields and the upswing in stock market sentiments there. QE is very much the last throw of the dice to prop growth -- and inflation -- back to levels deemed as the minimum acceptable. At the same time, situations on other fronts could conspire to sustain the dollar's rise. (Oil prices too have had a second wind over concerns on the deteriorating situation in Yemen.) For the moment, for GCC businesses looking to the Eurozone, the soft euro is all that counts. "If this state continues for long, importers still need to get access to liquidity to place orders on those goods and get them here," said a trader. "Banks are responding to importer needs to have instant funds on hand and offering them favourable facilities."

According to Falcioni, Coface has increased its exposure set on offering cover for trade receivables. The firm has been increasing its exposure on the credit cover made available for trade receivables (on open accounts).

"Insolvency are still high in Eurozone and well above the 2008 pre-crisis period due to a slow and laborious recovery that has not yet enabled the numerous areas of fragility to be cleared up," said Falcioni.

For Gulf-based companies -- Coface currently monitors more than 32,000 firms -- grants open account limits for up a $6.7 billion exposure, which is equivalent to $32 billion in insured domestic and export trading turnover. (The average payment credit terms period tends to be 75 to 80 days, though they tend to vary with the sectors they are in.) For Gulf-based banks, the Coface credit cover for factoring and loss payee is currently in excess of $1.3 billion.

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Publication:Gulf News (United Arab Emirates)
Geographic Code:7UNIT
Date:Mar 30, 2015
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