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EBRD and EGAP sign a guarantee agreement to boost trade in central and eastern Europe and the CIS
To help mitigate trade finance risks taken by Czech banks confirming letters of credit with other banks in central and eastern Europe and the Commonwealth of Independent States, the European Bank for Reconstruction and Development (EBRD) and the Export Guarantee and Insurance Corporation (EGAP) of the Czech Republic signed a guarantee agreement today for USD 31 million (ECU 27 million). This is the first time the EBRD has entered into a transaction with an export credit agency from one of its countries of operations.
"Participation in international trade is of key significance to economic transition. Competition and development of markets help ensure a better use of economic resources. The risk-sharing scheme with EGAP will enhance trade flows between the Czech Republic and the EBRD's other countries of operations", said Jacques de Larosière, the EBRD's President.
The project is a guarantee scheme, based on a risk-sharing arrangement involving EGAP, Czech commercial banks, acting as confirming banks, and the EBRD. Under the guarantee agreement between the EBRD and EGAP, the EBRD will issue guarantees to EGAP and reimburse up to 50 per cent of any losses incurred by EGAP in connection with letters of credit that EGAP will have covered at the request of the Czech confirming banks. Risks will be shared on an equal basis by EGAP and the EBRD, and a minimum of 20 per cent of the credit risks will remain with the Czech banks. The risk-sharing arrangement will stimulate Czech exports and will also strengthen local banks by adding to their experience of trade finance. The scheme will also contribute towards the reduction of market distortions and will reflect market pricing.
EGAP was set up in 1992 as a joint-stock company owned by the Czech Republic. It specialises in providing protection against credit risks when exporting goods and services from the Czech Republic. It follows the principles and recommendations of the International Union of Credit and Investment Insurers (the Berne Union) on best industry practices for export credit agencies. EGAP joined the Berne Union with observer status in April 1996, which is the final step before full Berne Union membership. EGAP will thus be the first eastern European member of the Berne Union.
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