Mr. Chairman and Members of the Sub-committee, my name is Richard P. Ferris and I am an Executive Vice President of Norwest Bank Minnesota, National Association in Minneapolis, Minnesota. As part of my responsibilities, I manage Norwest's international banking activities and serve as chairman of Norwest Bank International, Norwest's international banking subsidiary. I appreciate the opportunity to appear today to share Norwest's views on Export-Import Bank programs.
In addition, I serve on the Board of Directors of the Bankers' Association for Foreign Trade (BAFT), whose members are dedicated to fostering international trade. I would note that my comments are also supported by BAFT's membership.
Norwest Corporation is a diversified financial services company, headquartered in Minneapolis, Minnesota, with assets totaling more than $83.6 billion. Norwest Corporation provides banking, insurance, investments, and other financial services through 3,642 locations in the 50 U.S. states, the ten Canadian provinces, Central and South America, the Caribbean and Asia. As a super regional bank, Norwest is a leader in providing banking services to small and medium size companies. In fact, Norwest is the fifth largest small business lender in the country, (American Banker, January 13, 1997).
At Norwest, our philosophy is local marketplace decision-making. Our bankers who live and work in, say, Mason City, Iowa or Flagstaff, Arizona or Fort Wayne, Indiana make the decisions on lending in their respective communities they are not made by someone at the corporate office. Our philosophy is to "out local" the nationals and "out national" the locals. By that we mean, we must offer better products and a broader product line than our local competitors --- so we can be the financial institution of choice for all transactions and we also must out-perform our national competitors by staying close to our customers in each of our communities, understanding their needs, and providing professional, personal, timely service.
As part of Norwest's commitment to meeting all of our customers' needs, I appear before you today to support the case for re-authorizing Eximbank. Small and medium size businesses are Norwest's largest commercial client segment. Because of the role that Eximbank plays in assisting the small and medium size exporter, Norwest strongly supports the charter renewal, as well as the provision of sufficient budgetary resources to keep their programs viable. In the words of one of our small business customers in Brandon, South Dakota, "The Export-Import Bank certainly has assisted us in growing from being a domestic manufacturer to one that performs in the global marketplace. This is because the Export-Import Bank presents financing options for foreign entities -- governments, municipalities -- which would otherwise not exist. "
I would also like to comment on the importance of exports to Norwest's home state of Minnesota: Recently Minnesota's state Department of Trade and Economic Development reported that Minnesota's exports rose 8.9% between 1995 and 1996, compared to the national average of 7.1%. Exports in Minnesota are growing nearly twice as fast as the state's overall economy. The value of Minnesota's manufactured exports exceeded $8.9 billion in 1996, up from $8.2 billion in 1995. Additionally, Minnesota's high-tech industries represented over 58% of these exports. Please note the wages in these high-tech exporting companies are generally at the highest level of manufacturing jobs. This clearly is something that bodes well for our local and national economy.
In order to aptly convey our position on the renewal of Eximbank's charter, I will cover the following: Norwest's international banking focus, the challenges inherent to export financing, our experience with Eximbank and the potential impacts on U.S. businesses if Eximbank's charter is not renewed.
Small and medium size companies are increasingly using and developing competitive technology, pricing and service to expand their business into the international marketplace. Norwest has targeted a significant portion of its international banking resources around meeting the needs of those exporters. We facilitate our customers' trade activities by offering products designed to mitigate the payment risks on export sales, by far and not surprisingly their biggest concern. Additionally, Norwest offers electronic trade products which speed the collection of incoming funds and control the payment for purchased goods or services. Our role requires that we offer leading-edge products and superior information services to customers. Norwest's export financing and trade financing services contribute to our customer's ability to increase their sales and profits, thus improving their local economy, increasing employment and creating a sound tax base. As new exports positively impact our nation's economic environment and future, programs that support export growth should not only be maintained but strengthened.
Export financing has unique features which differ from domestic lending. When a bank approaches a domestic financing opportunity, the core evaluation focuses on the financial viability of the borrower and their ability to repay a loan. When a bank analyzes an export financing opportunity, the primary evaluation focuses not only on the financial viability of the transaction, but on the political risks inherent in cross-border lending. Export financing is generally tied to a specific export transaction of goods or services. Financing needs may include funding for the completion of the U.S. exporter's manufacturing process, or offering post-shipment financing terms for the buyer. Repayment terms and conditions are typically structured within the context of the particular sales contract and can often be an important element in winning the business.
Export financing presents additional credit sensitive issues not normally found in domestic lending situations. These include:
Plainly speaking, the credit profile of most foreign companies would not meet our domestic lending standards unless secured by eligible assets and/or enhanced by personal and corporate guarantees. Government export credit agencies like Eximbank serve as the primary source of coverage for the political risks inherent in financing exports.
Decrease In Export Financing Banks; the Need For Eximbank Programs There are approximately 300 banks in the U.S. offering basic international documentary services such as letters of credit and collections. However, when one reviews those banks providing the fullest range of export finance credit products, involving repayment periods of over one year, this number drops to fewer than 30, of which several are foreign banks operating in the U.S. This relatively modest number of banks offering export financing can be attributed to a number of reasons.
Moreover, as profit margins erode, banks have been forced to re-evaluate expanding their export finance business. Government programs, such as those offered by Eximbank, become more critical as banks seek financing alternatives which meet the trade needs of their commercial customers without exposing themselves to high levels of political risks.
In the case of Norwest, Eximbank products form the cornerstone of our international export finance strategy. Without these Eximbank credit products, our ability to offer support to small and medium size customers for their export sales would be dramatically undermined. Eximbank's guarantees and insurance have led us into new foreign markets, markets we otherwise would not have entered, to assist customers. Over time and because of Eximbank, Norwest has increased its level of credit comfort with these markets to the point where we are more willing to take some uncovered risks for short term periods. While Eximbank is not our only source of risk mitigation, it holds a unique position which no private sector institution is able to replace.
Reflective of our diverse client base, Norwest has significant experience with most of the
Eximbank programs that goes back over twenty years. Today, we remain active in
the following:
| Bank Letter of Credit Policy | Master Guarantee Agreement |
| Buyer Credit | |
| Supplier Credit | |
| Long Term Credit | |
| Medium Term Single Buyer Policy | Credit Guarantee Facilities |
| Consolidated | |
| Note Per Disbursement | |
| Short Term Multibuyer Policy | Working Capital Guarantee Program |
| Working Capital Master Agreement | |
| Working Capital Preferred Lender | |
| Working Capital Delegated Authority |
| Average Size of Exporter: | $4 million to $100 million in sales |
| Average Size of Transaction: | $175,000 |
| Top Countries | Brazil |
| Argentina | |
| Mexico | |
| Indonesia | |
| Turkey | |
| Equipment Type | Varied - significant concentration of |
| Ag-related capital goods |
A summary of Norwest Bank Minnesota, National Association's activity involving Eximbank over the course of the last two years is included as an addendum to this document.
In 1994 and 1995, U.S. exports grew over 10% per annum and on average over 8% per annum the previous five years. These figures are well above the U.S. Gross Domestic Product growth of 3%. However, despite this growth, the U.S. trade deficit continues to be a problem; the best solution is to increase exports.
Over one-third, or $150 billion, of export merchandise trade is generated by companies with 500 or fewer employees. One critical need of these small to medium size companies is to obtain working capital loans which help them take advantage of export opportunities. These fledgling companies often suffer from tight capital constraints. Given the difficulty of obtaining financing for pre-export manufacturing, they must often forego new export sales opportunities. For many of these companies, the Eximbank Working Capital Guarantee Program is their point of entry into the international marketplace
After a company secures sufficient working capital to produce their goods or equipment for export (front-end financing), they are faced with the challenges of getting paid (back- end financing). This may be complicated by the need to offer the buyer credit terms in countries where financing is very expensive or just not available. A customer story illustrates how Eximbank is able to help an exporter address this issue.
Air Tractor, Inc. is a small aircraft manufacturing company located in Olney, Texas. Air Tractor, Inc. produces a quality product, is competitively priced, and offers outstanding post-sale support service. In 1994, more and more international customers were inquiring about their planes; these non-U.S. prospects, however, required financing in order to make the purchase. Air Tractor did not wish to take on term foreign exposure, nor did they have the capital to finance these clients internally. For Air Tractor, Inc., the key to their successful export transactions has been the Eximbank insurance programs and export financing facilities extended by Norwest Bank.
Prior to establishing their relationship with Norwest, Air Tractor had been seeking assistance from a number of banks across the southwest, with little success since most banks in that part of the country had downsized, or even dismantled, their international departments.
In 1996, 107 airplanes were sold by Air Tractor, Inc. Of those 107 airplanes, 33 were delivered to customers located in ten countries outside of the United States. During 1996, Air Tractor utilized Ex-Im medium-term insurance which enabled them to make four overseas sales that otherwise would not have materialized. In 1996, 22 of the 33 export sales went to countries in which Air Tractor had Ex-Im insured sales in the previous two years.
According to David Ickert, Vice President - Finance for Air Tractor, "Without the Export- Import insurance our export sales would not have increased as they have in the last 3-4 years. These sales support jobs in Olney, Texas. These are jobs and incomes that pay taxes and are a productive part of the economy. Elimination of 31% of our sales would reduce our employment base. The diversity of export sales helps us better handle the regional downturns that occur in the agriculture market due to drought, market conditions and other events." Mr. Ickert continues, "I do not know of any source to replace the Export-Import insurance that we have used. I do not believe that our experience is unique among small/medium sized exporters."
Norwest has identified the following Eximbank programs as having the greatest growth potential with our customer base:
We have found that the Working Capital Guarantee Program, while a relatively small component of Eximbank's total programs, has the most growth potential. The Eximbank Working Capital Guarantee Program serves Norwest's target market small and medium size businesses. These businesses benefit from the Working Capital Guarantee Program because it allows them to obtain the necessary domestic financing.
A strong base of exporters do business in our banking states. Over 8,000 companies exported over $60 billion in exports from Norwest banking states. (Refer to Addenda for a state-by-state listing.) These statistics are conservative as the reporting data addresses ocean-going shipments only, and so we believe the export growth potential in markets is huge.
The Working Capital Guarantee Program has applications across many industries. It can assist small capital equipment manufacturers as well as technology, medical product, service companies and others when no additional credit is available.
Rangen, Inc., a Norwest customer in Buhl, Idaho, has benefited from the Working Capital Guarantee Program. Rangen is an aqua-culture feed manufacturer. Their specialized high-quality product is used to feed commercially grown fish. Rangen sells on a variety of credit terms from cash-in-advance to net 180 days. The company has had a good payment history with their foreign receivables and has not found a compelling reason to purchase foreign credit insurance.
Exports go to over 20 countries with a large portion to Mexico. Other countries include Ecuador, Chile, Taiwan, Costa Rica, South Africa, and Australia. Using the Working Capital Guarantee Program, Norwest established a $2,000,000 revolving credit line for Rangen, Inc. to finance its foreign receivables.
Wayne Courtney, CFO of Rangen states: "Rangen, Inc. has been a leader in the export of aquaculture feeds for over twenty years. With the help of Norwest Bank and Eximbank, we have seen a dramatic increase in our international sales. EX-IM facilitated this increase in sales. We became more competitive in the market. We were able to reduce our Letter of Credit and Prepayment requirements and better meet our competition and the needs of our customers. The Working Capital Program has significantly enhanced the cash flow for the company. We feel this program has been and will continue to be beneficial."
Norwest is an active and consistent user of EX-IM's programs. Our knowledge of their process and procedures allows us to anticipate their requirements. Because of this experience, EX-IM's service levels for our transactions have been generally acceptable. Insufficient staffing occasionally impedes an application process, however timing issues are more likely to arise from unusual credit requests or policy matters out of EX-IM's control.
On many occasions, Norwest and our customers have received exemplary service from Eximbank. For example, Norwest recently went to Eximbank to satisfy a customer's urgent credit need. Seed & Grain Systems is an engineering and general contracting firm with annual sales of $7 million, located in New Virginia, Iowa. In March, 1997, the company had an opportunity to bid on a $10 million overseas project. When the company requested a $200,000 standby letter of credit for the support of its bid, Norwest contacted Eximbank for assistance through the Working Capital Guarantee Program. Within four days, exceptions to the program were requested and approved by Eximbank.
Charles Frederick, president of Seed & Grain Systems, states: "The Export-Import Bank programs enable us to 'get into the game' in terms of entering into the bidding process abroad. We have found the Export Import Bank Working Capital and export insurance programs to be invaluable partners in our global activities and goals."
The primary financing alternatives to the programs offered by Eximbank include: the private markets represented by the forfait market and the international insurance market. In the private market, very large corporations maintain a considerable advantage over small and medium size companies. The private markets are much more willing to take on difficult emerging market risks for a large corporation rather than most small or medium size companies. The forfait market has become more active, however, transactions generally must be of a large dollar amount or high volume to qualify. While the international re-insurance market has recently shown a much greater appetite for foreign credit risk, these developments do not provide a significant trickle- down benefit to the small and medium size companies. Also, the international insurance market's willingness to take on more risk can be quite short-lived after any indication of changing market or country conditions.
There is a growing trend to structure export loans combining Eximbank involvement with other mitigation entities. However, in most cases, these transactions can only go forward when Eximbank supports a major portion of the financing structure. Eximbank's Working Capital Guarantee is a critical factor for commercial banks unwilling to lend to companies with international collateral. The absence of Eximbank's Working Capital Guarantees would have a grave impact on many small and medium size exporters; it would eliminate a unique financing source and leave them with little hope of finding a viable alternative. Small and medium size companies generate over one-third of the U.S. export merchandise trade. Eximbank is a critical component to ensuring this market segment continues to grow and to contribute to the success of the U.S. economy.
Failure to reauthorize Eximbank's charter would create some difficulties for banks, however it is the small and medium size companies who would truly suffer. Elimination of Eximbank would severely inhibit their bank's willingness to offer them credit packages for exports. One client explained what Eximbank means to his company, "It helped open a new market when credit terms were critical and later created a product demand when the country's economic conditions improved. Without those first sales, our product would not be known and subsequent cash sales wouldn't have happened."
Exporters, especially small to medium size businesses, would likely lose future export opportunities and sales for their company. A reduction in employment at the company would negatively effect the community in which the company operates. Failure to re-charter Eximbank will be a true loss for small to medium size companies, whose output, as stated earlier, constitutes one-third of the U.S. export merchandise trade.
Where Norwest is concerned, since our existing export loan portfolio would remain outstanding, initial impacts of Eximbank's failure to be re-chartered would be relatively minimal. Over the short term, we would redirect those staff positions handling Eximbank-related business to other activities. In the medium to long term, opportunities for new business would only be pursued on behalf of larger clients who transact high volumes of trade in larger dollar amounts. We would most likely cease to market export finance products to small companies, and would reduce our letter of credit confirmations. Most medium-term export credit business would not be solicited since private insurance coverage is limited.
I would like to conclude my comments by addressing some issues on which both BAFT and Norwest share similar opinions.
Early indications would lead us to predict that Eximbank's fiscal 1998 budget will not be sufficient to satisfy the current volume of business, much less the more likely increasing demands. Considering the very tangible benefits derived from exports, we strongly recommend that additional budget amounts be authorized so as not to put Eximbank in the position of limiting or modifying their programs. Such cutbacks could have a very negative impact. The ramifications would be hard to reverse, especially for the more traditional emerging markets that many small- and medium-size exporters have identified as having good potential for US-made goods and services. It is in these markets that the availability of Exim programs has been the key to winning sales. Diverting funds from these programs to other initiatives would be very disruptive to both borrowers and lenders. Last fiscal year, Eximbank supported $14.6 billion of U.S. exports which generated over 200,000 jobs for American workers.
On behalf of Norwest Corporation and the Bankers Association for Foreign Trade, we strongly support the charter renewal and provision of sufficient budgetary resources to the Export-Import Bank of the United States. Thank you.
| Program Type | Number of Transactions | US Dollar Value Financed |
|---|---|---|
| Ex-Im Medium Term | ||
| Guarantees and Insurance | 175 | $85,650,000 |
| Ex-Im Short Term Insurance for | ||
| Letters of Credit and Receivables | 237 | $93,435,000 |
| Ex-Im Working Capital Guarantees | 7 | $13,750,000 |
This activity represents actual amounts utilized. It does not include related financing using open credit lines or activity supported by private insurance providers. Exporters represent over 41 states and the majority of suppliers were small businesses.
| Northwest States | Number of Exporters | Aggregate Value of Exports | |
|---|---|---|---|
| Arizona | 136 | $725,930,008 | |
| Colorado | 205 | $1,272,382,793 | |
| Iowa | 143 | $654,608,529 | |
| Illinois | 1,481 | $17,499,615,405 | |
| Indiana | 361 | $2,105,001,743 | |
| Minnesota | 261 | $3,750,921,385 | |
| Montana | 15 | $22,354,722 | |
| North Dakota | 16 | $49,373,939 | |
| Nebraska | 92 | $1,714,457,716 | |
| New Mexico | 22 | $196,031,749 | |
| Ohio | 985 | $6,519,261,216 | |
| South Dakota | 11 | $35,352,103 | |
| Texas | 2,338 | $23,763,500,070 | |
| Wisconsin | 418 | $15,556,770 | |
| Totals | 8,059 | $60,558,474,422 |
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