Journal of Finance and Bank Management

Should Eximbanks Finance Firms with Direct Export Credits? An Empirical Study on the Credit Risk of Türk Eximbank
Nedim Sözen, Mehmet Baha Karan, Göknur Büyükkara

Abstract
By crediting firms directly without financial intermediaries, export credit institutions decrease adverse selection problems in the free trade market. Our purpose in this study is to seek if Export-Import Banks (Eximbanks) should give direct credits or not by analyzing the case of Türk Eximbank. Türk Eximbank is exclusive in the world export credit market since it applies short-term direct credits substantially in addition to indirect credits and insurances. It takes letter of credits to assign exporters to the direct credits. The default risk of Türk Eximbank is also very low. We develop a credit risk model with financial and non-financial variables for 1114 small and medium-sized enterprise (SME) firms that take direct credits from Türk Eximbank within the period of 2003-2008. Our analysis reveals that specific sectors like Forest, Paper, and Furniture carries much more risk but seem to be oversupported by the Eximbank directly, although they don't exhibit high performances. Overall, by referencing the Türk Eximbank case, our model proposes that the direct credit mechanisms of Eximbanks are successful under certain defined criteria. In addition the monitoring role of Eximbanks in the credit environment may become more important to lessen information asymmetries between the credit market participants.

Full Text: PDF