Addressing Needs and Mitigating Risks: How Harmonized Solutions Connect Exporters and Importers in Volatile Markets

Imagine you're an Austrian exporter about to close a significant deal with a Serbian client, supplying a food-processing machine valued at EUR 10 million. Your goal is straightforward: secure payment in EUR as per the delivery schedule. Meanwhile, your Serbian partner would like to have an attractive long-term financing. How do these requirements and goals come together?

In today’s world, risks are global. “Geopolitical developments can have far-reaching effects in all regions including Central and Eastern Europe,“ says Evgeniya Sharkova from RBI Trade Finance. “In addition to the counterparty and political risks, the parties to the commercial contract may face FX and interest rates risks,” adds Martina Zimmerl, RBI Capital Markets. Ultimately, exporters are looking for new ways to create additional competitive advantages. “By arranging long-term financing solutions for their clients, exporters can make a deal more attractive to potential importers,” Sanin Merdžan, RBI Export Finance, explains.

As an exporter, your primary concern is ensuring payment security. “From RBI’s various trade finance solutions, the export letter of credit (LC) is the first choice in our scenario,” says Evgeniya Sharkova. “The LC could be issued either by our own subsidiary bank in Serbia, or by one of the many partner banks we have in the country.”

“If you want to accelerate payment under the LC, the UPAS LC – usance payable at sight export letter of credit – could be a good way to bridge the period until the ECA-covered long-term financing is put together,” Evgeniya Sharkova says. With an export UPAS LC, the bank of the importer issues a letter of credit with deferred payment and a maximum total tenor of up to 360 days. For higher security, RBI confirms the letter of credit issued by the local bank. Thus, the exporter will mitigate the counterparty risk by taking the first-class payment risk of RBI instead of the risk of a local bank or local importer.

One of the main features of the export UPAS LC is that the exporter will receive its payment under the LC at sight, which means upon presentation of the compliant shipping documents. This special form of discounting under an LC offers the exporter the possibility to improve its cash flow and optimize its balance sheet. 

At the same time, the export UPAS LC offers the importer an extended reimbursement obligation towards the issuing bank. By offering longer payment terms, the exporter strengthens its negotiating position with the client. The interest for the deferred payment period under this structure is to be borne by the importer.

With the LC and the following ECA-covered financing, the exporter is able to mitigate both counterparty and political risk. Furthermore, payment is received under the contract in EUR as per agreed schedule. Its Serbian partner on the other hand obtains a financing in EUR at attractive cost. This multi-product solution provides an ideal bridge between an LC and ECA-covered financing.

RBI provides attractive long-term ECA-covered financing solutions such as the Buyer’s Credit and RBI Shopping Line for the purpose of financing of Austrian / European imports of investment goods starting from EUR 2 million onwards that are guaranteed by Austrian export credit agency “OeKB” or any other Western European export credit agency (ECA).

“For our particular scenario – once the client has successfully passed RBI’s internal risk and credit reviews -  we would provide a EUR 10 million OeKB-guaranteed Buyer’s Credit,” says Sanin Merdžan. "This solution gives the exporter liquidity and a competitive edge, while the importer benefits from attractive long-term financing terms due to ECA’s commercial and political risk cover provided to the lender, as well as fast execution, which helps them manage their cash flow more effectively.” 

Furthermore, exporters benefit from the option to have production risk covered, adding an extra layer of security to their operations. “When offering financing solutions on top of the supply deal, exporters can enhance their competitiveness in the global market,” the expert states.

On the other hand, this arrangement allows importers to preserve their own bank lines for other business needs, providing them with greater financial flexibility and debt capacity. Additionally, the ECA guarantee fee can be financed, further easing the financial burden on the importer. 

"Although in our scenario the currency risk might be of minor relevance at first glance since the RSD is a managed FX rate, yet a risk remains for the importer since it has concluded a long-term financing contract in EUR and is obtaining revenues in RSD,” notes Martina Zimmerl. “The focus for the importer is to build upon stable exchange rates and interest rate strategies to effectively manage risks and optimize financial operations in Serbia, ensuring resilience in a challenging economic landscape,” the expert says. “This is why it is so important to have a partner who understands both the global situation and also the on-the-ground macro, market, and policy environment.”

Our local experts in Raiffeisen Bank Serbia are monitoring the impact of US tariff policies closely, alongside domestic risk factors. Aleksandra Maksimovic, Head of Treasury and Investment Banking at our local subsidiary bank Raiffeisen Bank Serbia, notes: “Despite all challenges, the economic deceleration is still not confirmed in hard data, although it is expected to be seen in the coming quarters given the euro-zone economy slowdown.“ 

Even though we expect benchmark rate cuts, Serbia's exchange rate remains robust, supported by ample foreign exchange reserves. This stability serves as a macro-economic anchor, crucial in navigating the current economic environment. The National Bank of Serbia (NBS) is committed to a conservative monetary policy. This approach aims for a moderate reduction in EURRSD interest rate spreads, adapting to the evolving economic landscape. The ECB's dynamic rate-cutting policy, combined with Serbia's flat domestic key rate projected for 2025, supports growth in EUR-indexed lending. The attractive EURRSD spread is expected to persist, even with further ECB rate cuts and potential NBS rate reductions.

“The question of whether to hedge EURRSD FX risk ultimately depends on the respective client’s view on the market as well as its internal hedging policies,” explains Martina Zimmerl. Given the still developing nature of the FX forward market in Serbia, hedging is generally for shorter tenors. “For example, the importer could buy 3-months and 6-months forwards, and roll-over additional forwards at maturity to hedge future loan repayments.” On the other hand, as the FX rate is managed and IR differentials are positive, the importer may choose not to hedge the FX risk for the time being and to monitor the situation with the aid of a strong local partner such as Raiffeisen Bank Serbia. 

Interest rate swaps (IRS) are vital tools for managing interest rate exposure, allowing parties to exchange fixed and floating rate payments. They stabilize cash flows by converting variable-rate debt to fixed-rate debt or vice versa, thereby potentially lowering borrowing costs. In the case of the aforementioned Serbian importer, who is taking a long-term financing in EUR, we would advise hedging the interest rate risk via an IRS. “Our subsidiary bank in Serbia offers interest rate hedging starting from notional amounts of EUR 500k, with tenors from 1 to 10 years, under a local master agreement,“ explains Martina Zimmerl. In addition to the mentioned offerings of Raiffeisen Bank Serbia, it is worth noting that RBI is able to offer comprehensive hedging solutions, advisory, and structuring expertise also in other CEE markets, thereby supporting our clients’ business in the region. A close and honest communication with the client is vital, as IRS and other derivatives are complex financial instruments which offer risks and chances. It is important that the client has a clear understanding of the functioning, the risk, and the chances of these financial instruments.

Our integrated approach combining different products and solutions, such as expertise in trade finance, export finance, and capital markets offers comprehensive support tailored to our clients' needs. Our CEE competence through subsidiary banks distinguishes RBI, delivering customized solutions. We adapt to market changes, consistently enhancing our services to provide resilient financial solutions amid shifting geopolitical and economic landscapes. With robust risk mitigation strategies, RBI helps you navigate volatile markets confidently, ensuring competitiveness and security.

If you are interested in our specific offerings in CEE across all the presented products, please do not hesitate to contact our experts Evgeniya Sharkova, Sanin Merdžan and Martina Zimmerl. 

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