29 Aug 2018 09:22

Exporters might be forgiven not returning forex earnings given full insurance payment - bill

MOSCOW. Aug 29 (Interfax) - The Russian government is preparing changes to the law On Currency Regulation and Currency Control that will ease requirements for repatriation of foreign currency earnings on foreign trade contracts in cases where partners fail to meet their obligations, a financial market source familiar with the draft changes told Interfax.

The requirements will be eased if the exporter has insurance to cover the whole amount of the risk of nonpayment on the contract by the recipient of the exports, the source said.

"A resident is deemed to have fulfilled the obligation to repatriate forex earnings if he ensured the receipt of an insurance payout in foreign currency or rubles on an insurance policy for risks of nonfulfillment of obligations on a foreign trade contract or loan contract by a nonresident," the source said.

"The insurance payment must go into the exporter's bank accounts at authorized banks. Transfer of funds to bank accounts at authorized banks of a resident acting as the beneficiary on a policy to insure receipt of export earnings is also allowed. The procedure and timeframe for receipt of funds, as well as for determining the insured event have been defined earlier in the law On the Development Bank and in government resolutions," the source said.

"The requirement for the size of the insurance payment is an important condition: it must be no less than the amount of the expected forex earnings on the contract," the source added.

Under the changes proposed by the government, exporters' risks can be insured by both the state Export Credit and Investment Insurance Agency (Exiar) and private insurers. The changes are expected to "reduce the administrative burden on Russian exporters and expand Russian exporters' access to export insurance products, as well as promote the development of the insurance market itself," the source said.

The "adoption of these changes will probably have an influence on increasing exporters' demand for insurance protection against risks of nonpayment or late payment on foreign trade contracts," AlfaStrakhovanie CEO Vladimir Skvortsov said.

But the bill touches on a narrow area of credit insurance and is of interest to such players on the insurance market, he said. "However, one must understand that insurance for exporters not receiving earnings from counterparties in foreign trade contracts is fraught with high risks for the insurers themselves. As a rule, insurance companies take on such risks limitedly and with caution. This area requires professionalism," Skvortsov said.

In addition to Exiar, companies such as Russian-Belgian insurer Credendo-Ingosstrakh and Atradius Rus Credit Insurance will be able to expand their involvement in insuring the risks of exporters after the changes are approved, Interfax-CEA chief analyst Angela Dolgopolova said, commenting on the government's legislative initiative. Insurer Sogaz is showing great interest in insuring exporters' risks.

The bill allows Russian insurers to receive premiums in foreign currency on credit insurance policies for exporters and to make insurance payouts on insured events in foreign currency.

Exiar was established as a specialized state institution to support exports by providing a range of export credit and investment insurance products. It is Russia's national export credit agency and was built from the ground up as a result of a push by the Russian government in late 2009 to step up the development and implementation of its export support program as part of anti-crisis measures to develop the national economy.