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 by 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 Commercial Account loans EFIC can make and set the maximum contingent liability EFIC can carry under Commercial Account insurance contracts it enters into and guarantees it gives
• approvals from the Finance Minister under section 59 of the EFIC Act, which limit the type and amount of funding that EFIC can obtain under various borrowing programmes
• a direction from the Minister (in accordance with section 9(2) of the EFIC Act).

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 Minister. 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 power to enter into derivatives transactions derives from its general powers in section 11 of the EFIC Act.

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

EFIC's management reports regularly to the Board the results of its Treasury operations.

Capital adequacy guidelines

Under section 56(i) of the EFIC Act, the Board is required to ensure that EFIC'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 Parliament. The financial statements are audited by the Australian National Audit Office.

Confidentiality

The EFIC Act requires that members of the EFIC Board and employees keep client information confidential. A breach of the legislative secrecy obligation is a criminal offence potentially punishable by gaol sentence (section 87 EFIC Act). The EFIC Act permits EFIC to publish a limited amount of information about its transactions.

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

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

International competition policy

International 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 who are supported by their own national export credit agencies. However, EFIC's facilities are subject to minimum terms agreed by the Australian and other governments which are members of the Organisation for Economic Co-operation Development.

Dividends

The EFIC Act provides for payment of a dividend to the Commonwealth.