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Oman weighs credit risks on Egypt exports
Times News Service
August 21, 2013 , 9 : 35 am GST
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Nasir bin Issa Al Ismaily, GM of ECGA of Oman
: In light of the political instability and current events in Egypt which have affected businesses, export credit agencies (ECAs) of several countries are exercising considerable caution in providing new cover to their exporters to that country.
A number of ECAs have cancelled credit limits to buyers in Egypt as the payment risks have been compounded by political risks which could inhibit buyers to fulfil their payment commitments.
According to Nasir bin Issa Al Ismaily, General Manager of Export Credit Guarantee Agency of Oman, the level of its exposure to Egypt is currently negligible as it constitutes 2.2 per cent of its total commitments.
The agency has reassessed its position of providing new credit insurance coverage on Egypt and is recommending to its credit insured exporters that all new credit limits for Egypt should be under letters of credit confirmed by Omani or internationally acceptable banks. It has also stopped temporarily issuing new limits on open account cover for Egypt.
Al Ismaily said the ECGA of Oman would reconsider its position once the situation improves. Moreover, many credit rating agencies including Moody's, Fitch and S&P, have recently downgraded Egypt sovereign ratings as its ability to pay its foreign creditors remains vulnerable.
According to the ECGA of Oman, the level of the Omani exports to Egypt in 2012 was OMR30.5 million compared to OMR38.9 million in 2011 — representing a decline of 22 per cent.
Most of the Omani credit insured exports to Egypt consist of seafood products as well as paper-based packaging materials.
Nasir Al Ismaily said that even though the frequency of the occurrences of political risks covered by the ECAs — that resulted in payment of claims — are not as numerous compared to commercial risks that are due to protracted default and insolvency of buyers, such political events are riskier in scope as they affect all the buyers of that particular country, while payment of claims due to commercial risks are limited as they affect fewer number of buyers by the exporters. Hence, the claim amounts payable under political risks coverage are huge and significant, he pointed out.
By providing comprehensive coverage against both commercial as well as non-commercial/political risks, the ECGA of Oman allows greater peace of mind to exporters in mitigating such payment risks. In case of claims, the agency indemnifies exporters 80 per cent of the claim amount against commercial risks and 85 per cent against political risks.
Thanks to its sound and positive underwriting of such risks since the inception of its operations more than 20 years ago, the ECGA of Oman has managed to reinsure its exposure comprehensively against both political and commercial risks through international private reinsurance market for many countries, including many difficult markets.
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