Assessing and Managing Risk

The assessment and underwriting of risk is central to EFIC's financial management framework. All transactions underwritten by EFIC are reviewed by the Board or by Management in accordance with delegated authorities from the Board.

Country risk is assessed through the Office of the Chief Economist. Large or complex transactions are reviewed by a Credit Committee.

Contingent Liability and Loan Ceilings

EFIC operates within a strong regulatory environment. The controls imposed on EFIC include:

regulations under Sections 68 and 69 of the EFIC Act, which limit the total amount of loans EFIC can make and set the maximum contingent liability EFIC can carry under contracts entered into and guarantees given;
approvals under Section 59 of the EFIC Act, which limit the type and amount of funding that can be outstanding under various borrowing programmes (within the maximum amounts set by Regulation – refer above); and
a direction from the Minister (in accordance with Section 9(2) of the Act). Currently certain loans in excess of A$50 million are required to be referred to the Minister for approval.

Regulation requires that the Government review EFIC's exposure (and overall business trends) each time there is a request by EFIC to adjust the contingent liability or loan ceiling.

Treasury Operations

EFIC's functions and obligations are set out in the EFIC Act, including the framework for EFIC's funding activities by Treasury. Section 61 of the EFIC Act states that "EFIC must not borrow or raise money except under section 58 or 59". Section 58 allows the Finance Minister to lend money to EFIC and Section 59 allows EFIC to borrow or raise money, subject to written approval of the Finance Minsiter. To date, EFIC has funded its activities under Section 59 approvals.

EFIC borrows in the international market to fund its lending operations. The core function of EFIC's Treasury is to obtain competitive rates and to manage the reserves that represent EFIC's capital base. Treasury uses derivative products to minimise currency and interest rate risks involved in EFIC's business.

EFIC's treasury activities are consistent with Government policy. EFIC's Treasury is not intended to be a profit centre.

Management reports regularly to the Board the results of its Treasury operations.

Capital Adequacy Guidelines

Under the terms of the EFIC Act, EFIC's Board is required to ensure that the Corporation's capital and reserves are adequate to support EFIC's liabilities and loan assets.

Financial statements

EFIC publishes its financial statements each year in its Annual Report, which is tabled in the Parliament. The financial statements are audited by the Australian National Audit Office.

Confidentiality

The EFIC Act places upon Members of the EFIC Board and employees an obligation to keep client information confidential. Breaches of the legislative secrecy obligation constitute a criminal offence potentially punishable by gaol sentence (see section 87 EFIC Act). The EFIC Act permits EFIC to publish a limited amount of information concerning transactions it enters into.

EFIC is partially exempt from Freedom of Information (FOI) legislation.

The partial FOI exemption and the strong secrecy obligation placed upon EFIC employees recognise the need to keep confidential the commercial information EFIC needs to obtain from Australian exporters and investors in order to decide whether to enter into insurance, loan and other financial obligations.

Competition Policy

Competition policy requirements do not apply to EFIC's transactions. This is because EFIC provides medium term facilities to enable Australian exporters to match the terms offered by foreign competitors supported by their own national Export Credit Agencies. These facilities are, however, provided within specified minimum terms agreed by Australian and other Governments who are members of the Organisation for Economic Co-operation Development (OECD).