Forfaiting explained
product news
Rabobank International clients, as well as exporters served by the member bank
network, are increasingly turning to the expertise contained in a team that forms
part of our London Trade Finance operation. It specializes in a product called
forfaiting which can deliver quick benefits to the customer.
Fastoption
Reduced risks
Valuable complement
Transparent transactions
Flexible service
What's NewS Issue 9 October/November 1999
While most readers may well have
heard about forfaiting, only a few
are likely to know precisely what is
involved. The mechanics are quite sintple.
Basically, as the forfaiter, Rl will purchase
a debt instrument from our cliënt, who
has received it from a foreign customer as
a result of a cross-border deal. We take
absolute title to the debt and all associ-
ated risk. This debt can then be sold on to
the particularly well-developed secondary
market. The benefits to our cliënt, usually
an exporter of F&A-related products or
capital goods, are immediate: rather than
wait to be paid, he can pay a fee to obtain
instant cash-in-hand.
'Say an exporter has arranged to sell capi
tal goods to a cliënt in Turkey,' explains
the forfaiting team's assistant director,
Richard Whiting. 'The importer in Turkey
will have arranged with his bank to issue
either a term L/C, or a Letter of Guaran-
tee against a promissory note issued by
the importer. Our cliënt, rather than
holding on to an accepted draft or
promissory note, can elect the forfaiting
option, under which our team will buy
the credit instrument outright.'
Not only does our customer acquire
immediate cash upon delivery of the
goods involved, thus obviating credit peri-
ods, but he also avoids any potential risks
associated with the buyer's finance
provider (usually a prime bank in the
importing country concerned). Account
managers within Rl, and throughout the
member bank network, should thus take
note of this new centre of competence,
which offers another tooi in our continu-
ing effort to deliver customer value. For
discerning exporters and traders who wish
to do any cross-border business, and
particularly business conducted with
counterparts in the now-reviving
Teamplayers - Paul Landers (left), Gayle Fisher
and Richard Whiting
economies in Latin America, Asia and
Eastern Europe, forfaiting is a perfect
solution. It leverages not only RI's global
presence, but also the team's cumulative
total of 33 years specialized market expe-
rience in all aspects of pricing sensitivity,
necessary documentation and 'best-
practice' reporting procedures.
'Often, traditional export credit will only
cover 85% of a deal or else an allocation
of limits is unavailable,' notes Whiting.
'At forfaiting, we can usually quote a
price for a given risk that can't otherwise
be covered under a sintple limit allocation
and/or we can plug any shortfalls and
assure full 100% coverage on a deal. In
short, with internal limits increasingly
scarce, the forfaiting service can be under-
stood as a valuable complement to other
financing sources - one that can help
maintain a continuing dialogue with
important clients.'
When they first hear about forfaiting,
people often skeptically ask: 'Can it really
be so simple? What's the catch?' In fact,
for the bank, only limited risk is involved.
This is partly because the transactions are
transparent and the documentation is sim
ple in comparison with loan agreements
or Export Credit Agency (ECA) contracts.
Moreover, we often sell the obligations
quite soon after acquiring them. (The sec
ondary market is formed by other banks
and institutions and is centered predomi-
nantly in London, but also in Zurich, m
Frankfurt, I long Kong, New York, and
Paris.) Finally and more generally, trade
finance receivables have shown themselves
to be the most resilient fornt of debt
during a financial crisis. Since countries
always need to finance their immediate
trade, such obligations are often the first
to be repaid, and indeed experience has
shown that they only rarely fall victim to
refinancing or debt moratorium schemes.
Those who think they may be interested
in the benefits of forfaiting are encouraged
to contact the London team in the early
phases of a deal - usually before the
exporter and importer have agreed on a
structure of payment. 'We try to be flexi-
ble; we are happy either to let the accoun®
manager act as intermediary with the
cliënt, or we can establish a direct dia
logue and keep the account manager fully
informed,' explains Whiting. 'We will as-
sist the core business units with pleasure.
Also, we have seen opportunities among
many medium and small-capital goods
exporters, who are often inadequately
served by the competition. As long as it is
a cross-border trade, we are here to help.'
The London forfaiting team offers a
brochure with an ovewieiv of its services,
which is available via the public folders
under Structured Trade Finance' and
'Risk Mitigating Solutions'. You can also
contact the team: Paul Landers,
director and head of forfaiting
(+44 171 809 3 72 7); Richard Whiting, g
assistant director (+44 1 71 809 3270);
Gayle Fisher, assistant manager and head
of documentation (+44 171 809 3357),
or email them).
