Banks get guide on how to evaluate trade credit requests

Banks have been provided with a guide on the basic principles and methods for the assessment of short-term risks of lending to exporters.

Titled "How to evaluate trade credit requests," this handbook was recently released as part of government and private sector efforts to facilitate credit to exporters, particularly the small enterprises and those involved in non-traditional export sectors or sectors of economic importance but considered hazardous.

It is the local adaptation of a generic guide released by the International Trade Center (ITC). This version is jointly published by the Philippine Exporters Confederation, Inc. (Philexport) and the Export Development Council with assistance from the Small Enterprise Research and Development Foundation (SERDEF) and the University of the Philippines Institute for Small-Scale Industries (UP-ISSI).

The need for the guide surfaced as a result of a survey conducted by the ITC in 1998 on bank policies, practices and constraints with regard to lending to exporters in transition and developing economies. Findings showed that what was lacking was a clearly established, comprehensive, objective and systematic approach to assessing exporters’ requests for short-term credit, identifying the risks involved and evaluating measures to be taken to cover such risks. The absence of standard methods of treatment can lead to disparities in assessment of credit requests.

The guide then serves as a bridge to address this gap by essentially focusing on the analytical aspects of risk assessment and how to cover such risks. It also features other technical banking aspects such as deal structuring, the inclusion of payment instruments as part of the structure, monitoring of credit disbursement and debt servicing. Through this handbook, banks are also urged to become agents of economic growth and more active participants in the country’s exporting efforts.

The guide further provides a scorecard credit rating system that is a checklist of items a credit officer should be examining when assessing pre-shipment short-term credit applications. Against each item, the credit officer will attribute a number of points that reflect the extent to which the applicant or transaction being analyzed meets the bank’s criteria. The points are added up to arrive at an overall score. Normally, the higher the score, the better the creditworthiness or rating of the applicant or merits of the transaction.

Management, credit officers, training officers, customer relations officers and banking associations will particularly find this guide useful as they are directly or indirectly involved in the provision of short-term facilities to exporters.

This handbook comes as complement to another locally adopted ITC publication called "How to approach banks," which intends to provide a guide to SMEs to be familiar with credit requirements of banks. — Philexport News & Features