Investor relations

Overview

Treasury framework

At Export Finance Australia, we carry out treasury activities within a treasury framework that is approved by our Board, and compliant with the Export Finance and Insurance Corporation Act 1991 (EFIC Act), Public Governance, Performance and Accountability Act 2013 (PGPA Act), as well as associated approvals required by the Australian Government. Within this framework, we aim to prudently minimise the cost of funding 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 Export Finance Australia of any money that becomes payable, including borrowing from third parties. Our funding is underpinned by its AAA rating from Standard and Poor’s (S&P).

The main reason we borrow money is to fund loans made to exporters or buyers of Australian exports on either the Commercial Account 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. For these reasons, we maintain a diversified funding capability with spare capacity. This strategy ensures the 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. Also, under Section 58, the Finance Minister may lend money to us out of funds appropriated by the Federal Parliament. To date, we have funded our activities under the section 59 approval.

One of the core functions of Treasury is to raise funding at competitive rates. To this end, we borrow in the global capital markets. To fund 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 the core businesses, including Treasury’s funding operations.

The results of the funding operations are reported regularly to our Board. We do not take currency exposure on liabilities. Instead, 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 loans. The power to enter into derivative transactions derives from the general powers in section 11 of the EFIC Act.