Export Credits to the Russian Federation Program

Export Credits to the Russian Federation Program

Insurance backed by the State Treasury

The aim of the Export Credits to the Russian Federation Program is to facilitate and intensify trading between Polish entrepreneurs and their Russian partners. The program is carried out within the framework of insurance backed by the State Treasury. It is addressed to domestic and foreign banks financing export contracts realized by Polish entrepreneurs with Russian partners, as well as to Polish entrepreneurs exporting domestic goods and services to the Russian market under contracts financed with credit of 2-5 years. The main element of the program consists of engaging a Russian bank as a direct debtor or as a guarantor of a credit repayment by a Russian importer.

List of banks participating in the Export Credits to the Russian Federation Program

Key benefits of the Program

• provides an opportunity to cover receivables under export contracts carried out on credit terms of 1 to 5 years, under which Russian banks involved in the program act as guarantors or debtors
• facilitates establishment of co-operation between Polish and Russian banks
• allows Polish banks to intensify lending activities in the Russian market
• creates conditions for the development of financial settlements of export transactions between Polish and Russian banks
• reduces procedures for considering insurance queries

Principles of the Program
The program functions both as an insurance of supplier's (mercantile) credit, as well as an insurance of buyer's credit. Under the supplier's credit scheme the Russian bank involved in the program acts as a guarantor of credit repayment by the Russian importer. Under the buyer's credit scheme the Russian bank may act as a borrower or a guarantor of credit repayment by the Russian importer. Therefore, the program creates three types of relationships between parties to export contracts covered by KUKE S.A.

I.  Relationship occurring under the supplier's credit insurance scheme when the Russian bank involved in the program acts as a guarantor

Stages of performance of export contract financed with a supplier's credit under which receivables from the Russian importer are secured by a guarantee of the Russian bank involved in the program:

1. Polish exporter concludes a contract with the Russian importer for the delivery of goods and/or services.
2. Russian importer concludes a bank guarantee agreement with the Russian bank involved in the program. The Russian bank issues a guarantee of payment for the benefit of the Polish exporter.
3. The exporter applies to KUKE S.A. for the coverage of the receivables under the contract. KUKE S.A. signs an insurance agreement with the exporter covering receivables from the Russian importer which are secured with an irrevocable, unconditional and payable on first request bank guarantee issued by the Russian bank involved in the program.
4. The exporter fulfils his contractual obligations (delivers goods and/or services on dates specified in the contract) and defers payment.
5. The importer fulfils his contractual obligations (makes payments on dates and in amounts specified in the credit agreement).
6. If the importer defaults, the Russian bank that has issued the guarantee meets the obligations as set out in the guarantee agreement.
7. If the Russian bank defaults, KUKE S.A. pays the claim to the Polish exporter.

Under the formula of financing with a supplier's credit, upon the request of the exporter the Corporation insures production risk, that is the risk that occurs before the goods are shipped or services performed, and credit risk, that is the risk that occurs after the delivery of goods or services. Therefore, the exporter is covered against the risk of no payback of the costs he incurred in connection with the contract and against the risk of not receiving payment for the effected deliveries. It is also possible to insure credit risk alone.

II.  Relationship occurring under the buyer's credit insurance scheme when the Russian bank involved in the program acts as a borrower

Stages of performance of export contract financed with a supplier's credit when the Russian bank involved in the program acts as a borrower:

1. Polish exporter concludes a contract with the Russian importer for the delivery of goods and/or services.
2. Domestic or foreign financing bank signs a credit agreement with the borrower (the Russian bank involved in the program) adapted to the conditions of export contract performance.
3. The bank that is financing the contract applies to KUKE S.A. for the coverage of the credit plus interest extended for the financing of export of Polish goods and/or services. KUKE S.A. signs an insurance agreement with the financing bank covering credit plus interest.
4. The exporter fulfils his contractual obligations and provides the financing bank with documents confirming the delivery.
5. On the basis of the documents received the bank transfers funds to the exporter, at the same time charging the account of the borrower (the Russian bank involved in the program).
6. The Russian bank repays the credit plus interest to the financing banks on dates and in amounts specified in the credit agreement.
7. If the Russian bank defaults, KUKE S.A. pays the claim to the financing bank.

Under the formula of financing with a buyer's credit the Russian bank involved in the program acts as a borrower. The credit agreement has been signed directly between a domestic or foreign financing bank and the Russian bank. The insurance covers the credit plus interest to be used for financing a specific export contract which has been extended to the bank. Under the formula of financing with a buyer´s credit, the Corporation insures credit risk, that is the risk that occurs after the delivery of goods or services. Therefore, the bank or another export financing institutions covered against the risk of no repayment of credit plus interest.

III. Relationship occurring under the buyer´s credit insurance scheme when the Russian bank involved in the program acts as a guarantor

Stages of performance of export contract financed with a buyer's credit when the Russian bank involved in the program acts as a guarantor for payment by the Russian importer:

1. Polish exporter concludes a contract with the Russian importer for the delivery of goods and/or services.
2. Domestic or foreign financing bank signs a credit agreement with the Russian importer adapted to the conditions of export contract performance.
3. The borrower signs a bank guarantee agreement with the Russian bank involved in the program. The Russian bank issues a bank guarantee for the benefit of the lending bank.
4. The financing domestic or foreign bank applies to KUKE S.A. for the coverage of the credit plus interest extended for the financing of export of Polish goods and/or services. KUKE S.A. signs an insurance agreement with the financing bank covering credit plus interest, the repayment of which is secured with an irrevocable, unconditional and bank guarantee payable at first request issued by a Russian bank involved in the program.
5. The exporter fulfils his contractual obligations and provides the financing bank with documents confirming the delivery.
6. On the basis of the documents received the bank transfers funds to the exporter, and at the same time debits the account of the borrower (the importer).
7. The importer repays the credit plus interest to the financing banks on dates and in amounts specified in the credit agreement.
8. If the importer defaults, the guarantee issued by the bank involved in the program is realized.
9. If the bank involved in the program defaults, KUKE S.A. pays the claim to the financing bank.

In this case, under the formula of financing with a buyer's credit the Russian bank involved in the program acts as a guarantor. The credit agreement has been signed directly between a financing bank and the Russian importer. The Russian bank involved in the program issues an irrevocable, unconditional at payable first request bank guarantee for the benefit of the financing bank. The insurance covers the credit plus interest to be used for financing a specific export contract which has been extended to the foreign customer. Under the formula of financing with a buyer´s credit, the Corporation insures credit risk, that is the risk that occurs after the delivery of goods or services. Therefore, the bank or another export financing institution is covered against the risk of no repayment of credit plus interest.