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Overview

Guarantor:  Commonwealth of Australia
Credit Rating (S&P): AAA
Sovereign Rating update
Debt programmes:  A$1.5 billion MTN 
  US$2.5 billion MTN 
  US$1.5 billion ECP 
Efic Annual Report  
Efic Corporate Plan  

Treasury framework

At Efic we carry out our treasury activities within a framework that is approved by the Board, and compliant with the Export Finance and Insurance Act 1991 (Efic Act), the Public Governance, Performance and Accountability Act 2013 (PGPA Act) and associated approvals required by the Australian Government.  Within this framework, we aim to prudently minimise the cost of funding our loan assets on both the Commercial Account and National Interest Account.

Borrowing

Under Section 62 of the Efic Act, the Commonwealth of Australia explicitly guarantees the due payment by us of any money that becomes payable, including our borrowings from third parties. Efic is rated AAA by Standard and Poor’s (S & P).

The main reason that we borrow money is to fund loans made to exporters or buyers of Australian exports on either the Commercial or National Interest account. We may also need funding to cover developments linked to borrower defaults or calls by lending banks on the guarantees we’ve made – and for these reasons we maintain a diversified funding capability with spare capacity. This strategy ensures our funding model is flexible and robust enough to accommodate a degree of disruption to financial markets and to enable a range of pricing and risk management strategies.

The guidelines for our funding activities are set out in the Efic Act. Under Section 59, we are allowed to borrow or raise money, subject to the written approval of the Finance Minister – and under Section 58, the Finance Minister may lend money to us out of money appropriated by the Federal Parliament. To date, we have funded our activities under the section 59 approval.

One of the core functions of our Treasury is to raise funding at competitive rates. To this end, we borrow in the global capital markets. To fund our lending operations, medium term note (MTN) issuances are used for longer term core funding requirements, while euro commercial paper (ECP) is typically used for shorter dated requirements. Treasury uses derivative products to manage currency and interest rate risks arising from our core businesses, including Treasury’s funding operations.

The results of our funding operations are reported regularly to the Board. We do not take currency exposure on our liabilities — we effectively eliminate this exposure by borrowing in the same currency as the assets or, typically, by borrowing in another currency and using cross-currency swaps and other foreign exchange instruments to remove the foreign exchange exposure. Similarly, we use interest rate swaps and futures to match the interest rate profiles of our liabilities with those of our loans. Our power to enter into derivative transactions derives from our general powers in section 11 of the Efic Act.

Investing

The investment approval issued by the Finance Minister under the PGPA Act requires that our Treasury invests in senior debt of entities that are rated AA- or better as rated by S & P or in authorised deposit taking institutions as regulated by APRA rated BBB- or better (S & P).  Depending on the individual credit, our current maximum investment tenor is 5 years. These investment parameters may be further refined by our Board or the Executive team at their discretion.

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