Commercial banks are Sovereign’s largest single client group. Commercial banks utilize PRI and credit insurance for a variety of risk management reasons including:
- Basel III and IV provisioning
- Portfolio and country limits management
- Credit committee requirements
- Management of single borrower limits
- Alternative or complementary syndication capabilities
- Political risk and sovereign credit risk mitigation
Several of Sovereign’s more interesting transactions with commercial banks over the past several years include:
- The design of an innovative portfolio risk transfer program for one of our major commercial banking clients. The purpose of this ‘multi-country, multi-borrower’ facility was to create a cost-effective risk management tool for this bank, allowing it to free up country lines and expand lending activities in key markets in the Middle East. After a careful analysis of the bank’s asset portfolio, we were able to create a program that covered existing loans to borrowers in different industry sectors with various maturities, amortizing over 15 years. The portfolio consisted of eight countries with individual country limits of $75 million. The bank was pleased to have achieved an administratively efficient and cost efficient way to purchase PRI. This ‘multi-country, multi-borrower’ facility also gave the bank the flexibility to add new loans as existing loans amortized out of the portfolio over time.
- Providing nonpayment coverage on a number of export finance transactions guaranteed by the Government of an African country. These loans finance the supply of infrastructure-related goods and services enabling the government to begin rebuilding after decades of civil war. The tenors of these transactions ranged from 2 to 8 years, and most of these contracts were financed under Framework Financing Agreements between the country's Ministry of Finance and several European commercial banks.
- Underwriting several PRI policies, totaling $34 million, covering a commercial bank’s participation under IFC B-Loans to telecom operators in several African countries. The tenors on these policies are between 6 and 7 years.
- Providing a $41.5 million, 6-year nonpayment policy covering a portion of a syndicated loan to the Government of a Central Asian country. This loan is being used to finance the construction of transportation infrastructure.
- Several of our large commercial bank clients undertake a ‘short term portfolio transfer’ exercise with Sovereign each year. This involves Sovereign insuring a large number of individual L/C’s and short term trade loans for the bank on a portfolio basis. This exercise help the bank manage and improve its Risk Weighted Assets ratios and single name accumulations.