Dealing with foreign markets and buyers can be a daunting proposition. Commercial banks are not the first financing choice for most exporters. Commercial banks are often not competent to deal with complex overseas transactions and are worried about buyer credit. Some commercial banks do engage in export credit, though only under very specific conditions.
Conditions
Most commercial banks are looking for nearly perfect credit risks to finance. Major, well established firms are usually the only customers of commercial banks dealing in export credit. In general, commercial banks that are willing to finance exports demand export insurance, and therefore, the work of the American Export-Import Bank is often needed to make the deal more palatable to commercial banks. The Export-Import Bank is a federally financed institution that deals almost exclusively with insuring, overseeing and mediating the credit of international finance relative to American exporters.
Services
When a commercial bank has a relationship with a major exporter, the bank can serve as an important intermediary for these transactions. Generally, commercial banks can oversee the transactions, offer credit checks on potential buyers, contract with overseas banks in dealing with foreign purchases and smooth out any currency exchanges necessary for the exporting firm. Indian economist P. Periasamy writes that commercial banks can offer pre-shipment credit, which is short-term financing for working capital at the beginning of the export process. Banks can also offer credit to foreign buyers, advance payment prior to currency changing hands and offer loans secured by the existence of foreign demand.
Relationships
Whether it is the Export-Import Bank in the U.S. or the Ministry of Trade in India, commercial banks want guarantees from public authorities before offering loans or services to exporters. The export market, especially in the developing world, is still considered a difficult and unstable investment for most banks without government protection. It may be the case that a commercial bank could forgo this protection, but it is based solely on a long-term relationship of the bank with the exporter, where the exporter has proven itself reliable, and foreign demand -- and foreign buyers -- equally so. In other words, the commercial financing of exports depends on long-term relationships based upon trust and experience.
Risk Management
There are ways for commercial banks to reduce risk in foreign purchases. Some banks, such as Capitol Bank in Los Angeles, have a regional specialization in Taiwan and South Korea. In this case, it is not really the relationship with the exporter, but an expertise and a long-term relationship with foreign buyers that make such banks interested in financing exports. Wachovia Bank in the U.S. has long-term relationships with many foreign banks, making the financing of exports easier since Wachovia can use foreign expertise in gauging the reliability of international customers. In these cases, the banks have specific relationships with overseas buyers and banks that make export finance a less risky venture.
