Nationalisation of Dutch Export Credit Facility

Or, how the Dutch State explores its potential to efficiently operate in the export credit market
by: Wiert Wiertsema, Both ENDS

In the last 75 years the Dutch State operated a reinsurance system. Atradius Dutch State Business (Atradius DSB) reinsured with the Dutch State, medium and long-term export credit insurances issued to banks and exporters. Currently changes in the underlying law have been proposed to Dutch parliament that will change the status of the State from issuing reinsurances, into an agency itself directly issuing export credit insurances. Instead of state backed reinsurance policies, we are going to have state-backed-export-credit-insurance policies. In effect, this would mean a full nationalisation of the Dutch export credit facility. If I understand this correctly, Atradius DSB will in future have to compete in bidding processes with other interested agencies to be able to continue to implement the Dutch export credit facility.

The removal of the reinsurance level in the Dutch export credit facility is politically justified as a cost saving measure. In addition it allows commercial banks to fully exempt future Dutch ECA backed loans from the Basel-2 reserve requirements. In other words, the new law allows private banks to ‘dump’ any risks remaining under the ‘old’ system with the Dutch State. An active risk management policy is meant to enable the Dutch State to 'dump' those risks again with other parties.

The new law provides the legal basis for the active risk management that the Dutch export credit facility embarked on in recent years. Examples are the introduction of exposure swaps, reinsurance with private export credit insurance companies, reinsurance with other public export credit insurance companies, and credit default swaps (credit derivatives). With all these instruments, the aim is to expand and optimise the use of the space under existing country ceilings to offer more export credit support to private exporters. The law explicitly allows the space to develop new extra instruments to manage (more) risks. Contrary to the current practice, the new law will also allow reinsurance of transactions under the MIGA of the World Bank. This is to benefit Dutch investors that wish to utilise MIGA.

The explanatory note to the law states that the European Commission does not supervise the element of state support in case of export credit insurances on behalf of states, as there would be no competition in this field. As the EU Council Directive 98/29/EC requires export credit mechanisms to break even, one may very much question this statement. While under the existing system Atradius DSB is subject to independent financial supervision (AFM, Authority Financial Markets), the new state sponsored export credit insurance facility will not be subjected to such supervision. The only supervision left will have to come from the Dutch Parliament. The only formal reporting due in future will be in the context of the annual financial accounts presented by the State.