Thai exporters appear to be shunning letters of credit (L/Cs) in favour of more exotic products introduced by trade finance providers eager to earn a larger slice of the export financing market.

Some of these products are made even more attractive by support from the government-backed export credit agency, Export-Import Bank of Thailand (Exim Bank) and non-bank financial institutions.

Insurance and guarantee

Local bank, Kasikornbank, for example has recently announced a new trade credit insurance and guarantee service in co-operation with Exim Bank, Kasikorn Factoring and Phatra Insurance.

Under the programme, Exim Bank, Kasikorn Factoring and Phatra Insurance will offer trade guarantees for exporters, with Kasikornbank providing the required credit facilities.

Market share

The bank expects the new service will help it to raise its market share in international trade transactions to 15 per cent by 2005.

According to Kasikornbank's first senior executive vice-president, Teeranun Srihong, the bank now has about 7,000 export customers with a 10 per cent share of the market, worth around 2.9 trillion baht in transactions annually.

Kasikornbank says that exporters can use the bank as a one-stop service, helping save up to two to three days compared with exporters required to seek credit insurance elsewhere and then approach the bank for pre-or post-shipment financing.

Fewer L/C transactions

Teeranun estimates that L/Cs now back only about one-third of the export transactions he sees. This represents a significant fall from the 50-60 per cent of transactions that the banker reckons were L/C-based five years ago.

Teeranun claims that exporters using transaction structures more sophisticated than L/Cs will enjoy additional benefits, including a reduction in trading risks.

"Trade credit insurance and guarantees will reduce default risk for exporters who have no L/Cs. This, in turn, will help exporters expand to new markets, while enhancing the ability of the bank to provide credit to exporters," argues Teeranun.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.