Financial Institutions: Investment Banks, Eximbanks

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BUS 362 Financial Institutions and
Markets
Week 13: Financial Institutions: Investment Banks,
Eximbanks
Assoc. Prof. Hülya Hazar
Faculty of Economics and Administrative Sciences, Department of
Business Administration
[email protected]
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Financial Institutions and Markets
1. Investment Banks
2. Eximbanks
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Financial Institutions and Markets
Investment Banks
• Investment banks are established to increase production.
• They supply medium and long-term loans for investments.
• Investment can be:
• new investment
• expansion
• modernization of an old one
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Financial Institutions and Markets
Investment Banks
• They are considered as private banks.
• Their shareholders are usually other big commercial banks.
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Financial Institutions and Markets
Major source for investment banks:
• World Bank
• These loans were for eight years
• These loans had very low interest rates compared to the
commercial banks.
• % 50 to %70 of the investment was financed by the
World Bank.
• Other countries
• Especially from Germany, Switzerland, USA and Japan
• They all have different requirements and interest rates.
• These loans are for five years
• These loans require that the machinery should be
imported from these countries
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Financial Institutions and Markets
Investment loans:
• These loans require that the company applies to the bank
before the investment.
• The company is eligible for government incentives.
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Financial Institutions and Markets
Eximbanks
• Almost all countries have a foreign trade bank, which we call
an eximbank.
• This word comes from the term export-import bank.
• Its main objective is to increase exports of the country.
• Eximbanks are usually established as independent banks,
but are regulated and inspected by the governments.
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Financial Institutions and Markets
Main Functions of Eximbanks
• Insurance
• Loan
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Financial Institutions and Markets
Main Functions of Eximbanks
• Insurance
• Insurance is a form of guarantee.
• Eximbanks provide guarantee by covering the exported
goods’ value by insurance; i.e. if the investor does not
pay back the loan it received from another financial
institution, the Eximbank pays.
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Financial Institutions and Markets
Main Functions of Eximbanks
• Loan:
• Export Credit: These are short-term loans given to enhance exports.
• pre-shipment export credit
• foreign currency export credit
• performance credit
• Investment Credit: These are medium and long term loans given to
investments. Eximbanks usually finance upto %85 of the total
investment, and investors are expected to finance at least %15 of the
total investment. Total investment includes the cost of tangible and
intangible assets, cost of manpower, any services like transportation
and project design.
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Financial Institutions and Markets
To name a few Eximbanks:
Türkiye İhracat Kredi Bankası A.Ş.
• United States: Export Import Bank of the United States
• United Kingdom:the Exports Credits Guarantee Department
(ECGD)
• Germany:
Hermes Kreditversicherungs AG
• France:
Coface
• Turkey:
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Financial Institutions and Markets
Turkish Eximbank
• Türkiye İhracat Kredi Bankası A.Ş. (in short, Turkish
Eximbank) gives short-term loans to support exporting
Turkish companies.
• These loans are given by commercial banks acting as
intermediaries that are responsible for default risk of the
borrowers.
• Turkish Eximbank also has many insurance and guarantee
programs. This enables foreign buyers to purchase Turkish
goods and services on deferred payment.
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Financial Institutions and Markets
Types of loans of Turkish Eximbank:
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Preshipment Export Credit: Designed to support export related
industries from initial stages of production.
Small & Medium Scale Enterprises Credit: Designed to support small
and medium size manufacturers, manufacturer-exporters.
Priority Development Areas Credit: Designed to support exporters in
developing regions.
Foreign Currency Export Credit: Designed to support export related
industries from initial stages of production. (Same as Preshipment
Export Credit)
Foreign Trade Companies Short-Term Foreign Currency Credit: Credit
allocated on the basis of previous year’s export performance.
Foreign Trade Companies Short-Term Export Credit: Credit allocated
on the basis of previous year’s export performance.
Past Performance Related Foreign Currency Export Credit: Designed
to increase the competitiveness of exporters in international markets.
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Subjects Covered
1. Investment Banks
2. Eximbanks
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References
Readings:
Chapter 22
Reference Book:
Mishkin, Frederic S. Financial Markets and Institutions. Eighth Edition.
UK: Pearson, 2016.
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Financial Institutions and Markets
See you next week…
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