This interview was conducted with Exim CEO Zoltán Urbán before Christmas, since when he sadly passed away following a heart attack while on a skiing holiday. The BBJ extends its sincerest condolences to his family and colleagues.
Hungarian Export-Import Bank Plc. and Hungarian Export Credit Insurance Plc. (together EXIM) perform the tasks of Hungary’s export credit agency, and together they boosted exports by HUF 211 billion in loans and insurance in 2017. The top priority now is to equip even more local SMEs with the financial means to stand their ground on global markets, Exim CEO Zoltán Urbán tells the Budapest Business Journal.
To what extent did you manage to accomplish your plans for 2017, given the fact that it was the first year of your current strategic planning period that takes us through to 2021?
This new strategy marks a milestone, but I must add that we always adapt these periodic programs to the state of the economy. The previous one was just for three years as it was tailored to tackle challenges at a time characterized by low corporate lending activity on the part of commercial banks. Exim’s two-digit volume growth started in 2013, which was a result of targeted government intervention in the lending market. With the recovery of market-based lending, the landscape has changed. Now our current strategy aims to offset three major market failures by financing the investments of micro enterprises and SMEs, supporting entry into risky export markets via export credits, loan guarantees and insurance products, and providing capital-related products for the small- and middle-sized corporate segment. By virtue of law, we are authorized to grant domestic loans to boost competitiveness, but since competition exists inside and across the borders alike, this kind of capital prepares companies to do well both in Hungary and abroad.
So, originally Exim was meant to finance only enterprises with an existing export operation, but now you also support partners who are considering going global?
Indeed, this a new element of our lending policy. Even though in Hungary just about one-fifth of local SMEs export products and services and their share of the total export volume amounts to 17%, we firmly believe that these rates are bound to go up.
How did the market receive this new initiative?
Our primary focus remains export loans, guarantees and insurance. By September 2017, our loan stock had reached HUF 861 billion, we have granted HUF 257 bln of new loans this year, whereas loan insurance totaled HUF 77 bln. Some 83% of all those products are still export-bound. So, we are not overtaking any of the duties of commercial banks; we only complement them. In our portfolio, large corporations carve out more than 60% of the total loan volume, but if you look at the number of our clients, we are happy to report that 83% of them are SMEs. Another pleasant phenomenon is that we have managed to double the number of our SME clients since the end of 2015.
What about the amount of loans granted? Has it been growing in sync with what you mentioned?
Yes, even if that two-digit growth rate shrank to a one-digit one. But in the meantime, our loan stock increased substantially, so the two-digit dynamics became hard to maintain. Actually, our loan stock has tripled between 2014 and 2017.
That period also marks the gradual return of the commercial banks to the corporate lending scene. How is your relationship with them now?
We have refinancing agreements with 28 financial institutions in Hungary to distribute our loans to the final beneficiary companies. Our products are available at all leading leasing companies, which, together with commercial banks, help us market our products via their national networks. And in certain cases we can serve clients directly as well in cases, for instance, where they need loan insurance is needed for high-risk export transactions.
Export credit insurance is Exim’s other major service apart from loan guarantees; how has its volume changed lately?
In the past three years our export credit insurance operation has been hampered by three factors: the embargo against Russia, the conflict between Ukraine and Russia, and the economic crisis in Greece. The funded companies are typically from the pharmaceutical, agricultural machinery, chemical and machine industries. Most of our funds are received by pharmaceutical companies that are exporting to Russia. Apart from that, agricultural machinery, manufacturing and chemical products are covered. Our loan insurance stock amounts to some HUF 260 bln, this year alone coverage worth HUF 77 bln has been allocated. If you add our export loans to that, Exim can pride itself on contributing to a total HUF 211 bln of additional export volume, which would not have been possible without our engagement. Thanks to this intensive activity, we are going to over-perform our 2017 business plan.
So, it seems that your strategy is working. Are SMEs getting more focus?
We decided to shift our financing resources from large corporations to the SME segment. More SME clients mean more work, but simultaneously SME exports have witnessed an upswing in Asia, North Africa, the West Balkans and the Middle East. We are confident that by 2021 half of our total loan volume should be SME-bound. And let’s not forget about our development aid activity either, which gives us the opportunity to finance projects in Third World countries that are carried out by Hungarian companies. We are talking mostly about SMEs that are involved in different kinds of sectors, from software engineering to manufacturing to installment.
One of your funds recently invested HUF 1.5 bln in pharma startup RotaChrom. Is this an indication of the direction in which your financing focus will turn?
Our Export Boosting Private Equity Fund is specifically designed to support such innovative businesses. We also funded STEMP, a startup selling smart thermometers, and EPS, which teamed up with Chinese giant ZTE to set up an intelligent parking system in China. On the other hand, another fund in which we are co-investors, the East-West European Venture Capital Fund, launched in November with the aim to invest primarily in innovative early phase companies in Portugal and Hungary. As far as our Chinese funds are concerned, our first one, the CHINA CEE Fund I has invested most of its capital by now, including investments worth USD 91 million in Hungary. In the case of CHINA CEE FUND II and SINO CEE FUND, for which we signed respective subscription agreements at the recent 16+1 Summit in Budapest, these funds have committed to make investments in Hungary at a multiple of the amount of EXIM’s investment into the funds. Our relationship with China is further strengthened by a framework agreement with the Export-Import Bank of China, which is to provide funds of up to EUR 500 mln, that we can use to grant loans to Hungarian SMEs. All these steps greatly contribute to economic growth.