§ Mr. Lawrenceasked the Secretary of State for Trade and Industry what steps have been taken by the Export Credits Guarantee Department to limit its exposure to interest rate movements arising under interest support agreements entered into with banks involved in the fixed rate export finance scheme.
§ Mr. Alan ClarkThe fixed rate export finance (FREF) scheme enables medium and long term finance to be provided in support of United Kingdom capital goods exports at fixed interest rates. This is achieved by ECGD's undertaking to make up to the banks any shortfall between the fixed rates and their floating rate cost of funds plus a margin. ECGD's obligations under these arrangements are open-ended.
In recent months ECGD has fixed its interest rate exposure on a substantial proportion of its liabilities under the FREF scheme by recourse to the commercial interest rate swap market. To date, the Department has hedged its interest rate exposure in relation to US$2 billion of loans guaranteed under the foreign currency FREF scheme. Although the Department's current swap programme is now complete, further hedging operations may be undertaken at some stage in the future.