Some of you may already be acquainted with Non-Payment Insurance as a component of a Trade Credit Insurance (TCI) Program. Within this framework, Non-Payment coverage safeguards a company's accounts receivable and compensates the policyholder for the invoice amounts of goods and services provided to approved buyers who default due to financial or political circumstances. Significant events that may activate TCI Non-Payment coverage include breaches of contract, non-certification, embargoes, warfare, political violence, and government intervention, as well as non-payment for reasons other than commercial disputes. It is important to note that this TCI solution is not all-encompassing; it only extends to accounts receivable for a specified buyer within an agreed-upon credit limit. Typically, the primary users of this solution are exporters.

Banks, which rank among the leading lenders, often express concern regarding the safeguarding of their debts against Non-Payment risk, also referred to as Credit Risk. In the past, the prevailing response from the insurance markets to banks was that such risks fell under the category of business risk. Banks earned interest as compensation for the risks they undertook, thus making it impossible to insure such business risks.

Nevertheless, the insurance landscape has undergone significant transformation in recent years. Numerous innovative solutions have been developed to address emerging or previously uninsurable risks through structured schemes and alternative approaches. The market is beginning to offer genuine Credit Insurance or Non-Payment Insurance to financial institutions and lenders. However, this remains quite limited and is primarily in a pilot phase, characterized by strictly defined criteria for banks, extensive discussions, and substantial information exchange within project groups before arriving at a customized solution for banks.

Indochine Insurance Brokers JSC (IIB) is privileged to participate in this pioneering project, collaborating with our partners in Singapore and London to formulate the initial proposal for this solution for selected elite banks in Vietnam.

The primary objective of this solution is to offer adequate protection against corporate credit risk exposures by addressing the potential failure, refusal, or inability of borrowers to fulfill their contractual payment obligations. This solution provides banks with significantly more advantages than merely serving as a compensation mechanism for potential losses arising from bad debts and safeguarding the balance sheet. It empowers financial institutions to make substantial commitments in syndicated transactions, allowing them to either scale up or reduce risk when selling down positions, thereby enhancing lending capacity while adhering to internal credit limits. Additionally, it aids in diminishing capital volatility, substitutes counterparty risk with that of rated insurers, and assists in managing capital requirements by reducing risk-weighted assets, which alleviates pressure on regulatory capital and improves returns. Furthermore, banks gain from a discreet and unreported form of risk transfer, facilitating the management of exposures across various countries, sectors, and obligors, while increasing the likelihood of transaction approvals. On the revenue front, this solution fosters the creation of a reliable and secure revenue stream by enhancing the predictability of income from the loan portfolio and mitigating migration and concentration risks.

Preferred examples of insurable transactions in Vietnam include Trade Finance, State-Owned Loans, Project Finance with robust sponsors, and Asset-Backed Finance such as Ship Financing. Insurers generally exhibit reluctance in covering loans for SMEs or certain high-risk corporate portfolios. Nevertheless, as this solution is in its pioneering phase, discussions remain open, contingent upon the availability of solid information and a sound commercial rationale.