For each guarantee application, EKN makes an assessment of the risk of non-payment in the associated transaction. This risk assessment is made up of two main components – assessment of political risk (country risk assessment) and assessment of commercial risk.
The premium for EKN's guarantees is based on these risk assessments of political events and commercial events.
How does country risk assessment work?
Country risk assessment is mainly about assessing a country's ability to transfer currency for foreign payments. This ability is determined by a number of different circumstances which can be grouped as political, economic and financial factors. The country risk assessment involves weighing and assessing these factors in order to come to a conclusion about a country's ability to pay. The country risk assessment also includes consideration of the risks of action by public authorities or how the regulatory environment may affect an individual transaction in the country under consideration – factors which may play a key role in the assessment of the individual transaction.
The country analyses are based on comprehensive source material from bodies which include the International Monetary Fund, the World Bank, credit rating agencies, consulting firms and guarantee agencies in the OECD. EKN also actively participates in OECD's annual risk classification of over 140 countries. This classification is used to define the minimum premium for credit risk in each country.
Country risk assessment sums up to a country policy
EKN's assessment of the risk of commercial loss events involves a credit assessment of the buyer and the transaction in question.
EKN summarises the country risk assessment in a country policy, outlining the basic guidelines we use for different countries. The country policy is regularly updated, and is is based on EKN's own risk assessment and the minimum premium levels for political risk defined in the OECD cooperation.
The policy includes price information, expressed in country risk categories. The country risk categories are arranged on a scale of 0 to 7 – the lower figure, the better the country's creditworthiness. The country policy also provides information about EKN's ability to issue guarantees. This ability is described using the expressions 'normal risk assessment', 'restrictive risk assessment' and 'normally off cover'.
Here on the website, normal risk assessment is marked in green, restrictive risk assessment in yellow and normally off cover in red. EKN's ability to issue guarantees for a country may differ for different types of risk in that country.
EKN divides these into the following group:
- sovereign risk
- other public buyers
For example, EKN may have yellow (ie, restrictive) for sovereign risk, but green (ie, normal) for other types of risk.
If no policy has been defined for the country, this is marked in grey.
Exports with short risk periods for local markets
We have a special policy for countries where, on competition grounds, the EU has restricted the scope for EKN (and other guarantee agencies) to issue guarantees for credit periods shorter than two years. The policy applies to the EU member states and Australia, Iceland, Japan, Canada, Norway, New Zealand, Switzerland and the US.
These EU restrictions mean that EKN and the export credit agencies of other EU member states cannot issue such guarantees.
In EKN's country list are the countries with this policy classification marked in blue.
Due to the economic situation in Greece the EU Commission has decided to allow government agencies to insure short-term risks with Greece until the end of 2014.