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Q&A Session with speaker Eugenio Cavenaghi

Mr Cavenaghi will be speaking at the upcoming 10th Annual Export Finance Germany Conference on 1st & 2nd December 2016


Euromoney Seminars and Trade Finance sat down with Eugenio Cavenaghi, Head of Trade, Export & Supply Chain Finance for Germany, Austria, and Switzerland at Banco Santander. In this wide-ranging Q + A session, we looked at the impact of regulation and new export destinations for the bank.

How has the ECA business been this year? Have you changed your approach in order to adapt to market difficulties?

Well, I think we can say generally that it has been a good year for us so far. In the overall market ECA volumes are down but we as an institution could actually have a good year. This is as a result of many factors including our projects starting earlier and closing around this time.

We are in expansion-mode at the moment as we look to follow new market strategies. Santander is now looking to support exporters outside our traditional scope and this has resulted in new opportunities.

With this being the case which countries/sectors are most active for you right now? Where are these new opportunities?

We have been growing our interest in Africa for example and in the Middle East, and this is where we have seen a lot of new projects besides the more traditional areas of Latin America and Europe.

Has the expansion to the Middle East and Africa affected your approach to pricing and tenors?

Pricing has always been tied to the risk. For Euro-denominated assets, the cost of finance and the cost of borrowing is down on average across the board due to the ECB monetary policies. Furthermore, it is very much a case-by-case assessment of the countries we are in so it is difficult to discuss pricing and tenors in more general terms.

Latin America, as you mentioned earlier, is one of Santander’s main regions of interest. What are your thoughts on it and the potential of ECA deals in the future?

Latin America is of course an interesting region and one that you cannot define as being uniform. Each country has their own history and their own connections. As such we are talking of varied situations. For example you have Brazil at the moment, which is affected by a recession and other difficulties. On the other hand, you have Argentina which is attracting a lot of investors’ attention. Even though it still is a challenging market, it offers interesting prospects. You also have the smaller countries like Colombia, Bolivia and Peru, which each have their own sectors and capabilities. Even small countries such as Panama have renewed ambitions with the expansion of the Panama Canal. In terms of energy, Mexico is going through important energy reforms just like Argentina and this could prove to be exciting in the future.

In general, despite people being disappointed by the fading role of Brazil as the regional power-house, there is plenty to be optimistic about in the region.

How about we focus on Brazil a bit more; what are the challenges for exporters who are looking at the country?

Brazil’s productivity in the market has been significantly lower this year as a consequence of investors becoming more conscious about large projects, and the number of opportunities in larger investments decreasing. The abrupt change in government and the reduced level of activity of state-owned companies – once the catalysts for the entire local economy and then badly hit by anti-corruption investigations -  created a lot of uncertainties and made several projects go by the waist-side.

However, one must remain positive as the situation seems to have found a new course. There is more clarity on the political scenes and this is hopefully going to lead to more stable market condition, which will in turn be favourable for long-term projects. How long will this take? I am not sure.

So whilst it may appear to be a difficult time for Brazil, what is making Argentina such an exciting place?

There is a lot of excitement about Argentina with the new government opening up the market to the international arena. This is encouraging a lot of investor interest in the country. We should also not forget that Argentina is already a large G20 economy that is only now reopening up to the international markets again, after being isolated for about 15 years,  meaning that there is potentially a big upside for early investors to snatch up.

The Argentine government has taken important steps to reform various sectors, such as energy. They have an ambitious energy programmes, having done roadshows in OECD countries to encourage exporters and investors.

This is especially interesting for German exporters’ perspective, many of whom are making big plans for Argentina. One sector that is exciting above all is the wind sector, with turbine manufacturers in high demand. There are also ambitious investment plans in the transport sector such as locomotives and railways that need to be renewed quickly and on a large-scale. There is a need for several billions of dollars of investments.

Argentina will need to set its priorities and decide which changes will be made first. The support of ECAs will be integral as they reassess and reconsider the credit limits and risk profile of the country.

What advice do you have for German exporters looking at Latin America?

Argentina is the obvious destination to consider, but in general it is important that you have a contact who knows the region. As a bank involved heavily in Latin America, we can say it is crucial to have a local connection to the players so you know which counter parties and relationships make the most sense. Of course, exporters will need to go with open eyes and ears, but a bank or expert adviser who has experience in the region is a big help.

As well as Latin America, you mentioned Banco Santander’s other main export finance region of Europe. How has Brexit affected the bank’s decision making here?

To be honest for us, it is business as usual. The bank is structured in a way that we can cope in a world with or without Brexit.
From a corporate perspective, there have been individual companies that have taken their own position and said that there have been many advantages of being in the EU, and the fact that these advantages might be lost could lead to their own reconfiguration in the market. If Brexit happens change could happen, but on an individual basis.

For the larger exporters in continental Europe, however, I don’t think it will have a serious impact in the short-term.

Another big change that is looming in the future is Basel IV, what could the consequences be for increasing regulation?

Basel IV is an evolution of III and regulatory changes have now become part of our daily business. For the export finance business itself, it is not a huge change of attitude in the sense that it will remain attractive for banks to conduct ECA deals as it is a relatively safe way of managing long-term credit exposures. However, it is too early to say whether it will affect pricing and there are also many other factors to consider.

Finally, I just wanted to hear your thoughts on the exciting discussion of Fintech and digitalisation becoming a part of the export finance world. How are Santander looking at it?

Export finance is still a sector which is difficult to digitalise. Good export finance banks are ones which have particular sensitivity to the markets where investments are happening, and they can provide good guidance to the exporter. This comes with experience and market connections, which cannot be easy to digitalise via an app for example.
Face-to-face communication remains an important part of the job to get access to the right information at the right time. It is something that primarily comes from personal knowledge and having an extensive network of contacts in the market. Export finance will remain a type of business where having the right people is better than having the right algorithm.

This content is provided by Euromoney Seminars for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.

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