2009
The Irish Exporters Association (IEA), today 23rd Feb 2009, issued a statement advising that many exporters had now reached crisis point in their cash flow management, as credit insurance underwriters have cancelled or substantially reduced the credit cover extended to them in Ireland. This, the IEA point out, has put the €9 billion of exports covered by credit insurance on a rolling 6 month basis, and a further €10 billion of home based trading covered by credit insurance which is affecting the supply of locally produced goods and services to exporting companies.
John Whelan, CEO of the IEA, commented on the drying up of the credit insurance facilities:
"There is little alternative for many exporters in managing the cash flow requirements for their export orders, as the banks have tightened the conditions to providing credit, or guarantees to their clients, and securitisation of exporters receivables is critical to survival in the current economic environment."
He went on to say:
"Credit insurers are responding to the higher international risk climate by reducing their exposure. In doing this they have reduced the insurance cover and cash flowing of overdue debtor payments. This in turn reduces the credit worthiness of the exporter in the eyes of his suppliers and bankers."
He further stated:
"We are looking at market failure on a massive scale, which has already lead to widespread creditor liquidations, totalling 753 closures in 2008."
(NOTE: this is up from 370 Insolvencies in the year 2007)
"Export industry expects this company closure trend to accelerate as we proceed through 2009, with 74 insolvencies in January already and an estimated 900 for the full year, unless corrective action is taken quickly."
John Whelan concluded his statement as follows:
"The Government has acknowledged the plight of exporters and the market failure conditions, and has indicated some months ago it will enter the market to jointly guarantee with the insurance underwriters a scheme to keep the export credit insurance market open.
However, Government inaction continues while solid viable exporters are running out of cash to keep trading on a daily basis, and forced into unnecessary closure."
The IEA point out that in times of crisis, perception of risk changes and risk aversion increases. Therefore demand and need for credit insurance tends to increase. In the current climate, credit insurance underwriters have decided to reduce their own exposure to as many potential loss situations as possible by reducing the cover to on average 50% of the sales to any particular country, or set of clients in a particular country. They also increase their insurance premiums for existing clients and put an added cost for new clients.
The IEA, in early January 09, met with the Tanaiste and Minister for Enterprise Trade and Employment, Mary Coughlan TD and her officials, to put the case for the Government to jointly underwrite the export credit insurance schemes in existence in Ireland, with the Commercial Underwriters to prevent major cash flow problems facing the export sector. A copy of the proposal is available from the Irish Exporters Association.
In principal the Tanaiste and her officials agreed with the proposals, but subject to an economic appraisal.
End
For Further Information contact:
John Whelan
Irish Exporters Association
087 9271243
jfwhelan@irishexporters.ie
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