Export-Import Bank: Recent Growth Underscores Need for Improved Risk Management and Reporting

What GAO Found

Ex-Im's Business Plan concluded that the exposure limits in the Reauthorization Act were appropriate, but GAO’s May 2013 report found weaknesses in the methodology Ex-Im used to justify that conclusion. The Reauthorization Act increased the Ex-Im exposure limit to $120 billion in 2012, with provisions for additional increases to $130 billion in 2013 and $140 billion in 2014. Ex-Im forecast that its year-end exposure would be $120.2 billion in 2013 and $134.9 billion in 2014, below the congressionally determined limits. However, the buffer between the exposure limit and Ex-Im's exposure forecast for 2013 and 2014 is small in comparison with recent historical experience.

GAO’s March report found that Ex-Im has been developing a more comprehensive risk-management framework, but could take additional steps to improve this process. For example, Ex-Im has started addressing recommendations by its Inspector General (IG) about portfolio stress testing, thresholds for managing portfolio concentrations, and risk governance. GAO’s review indicated that the IG’s recommendations represent promising techniques that merit continued attention. In addition, GAO concluded that reporting stress testing scenarios and their results would aid congressional oversight and be consistent with internal control standards for effective external communication. However, Ex-Im could further improve its risk management, including its risk modeling. Ex-Im calculates credit subsidy costs and loss reserves and allowances with a loss estimation model that uses historical data and takes credit, political, and other risks into account. Consistent with industry practices, Ex-Im added factors to the model in 2012 to adjust for circumstances that may cause estimated credit losses to differ from historical experience.

Ex-Im also could improve its analysis of the financial performance of its portfolio. As of December 2012, Ex-Im reported an overall default rate of less than 1 percent. Ex-Im’s default rate declined steadily from about 1.6 percent as of September 30, 2006, to just under 0.3 percent as of September 30, 2012, before edging up slightly by the end of the calendar year. However, this downward trend should be viewed with caution because Ex-Im’s portfolio contains a large volume of recent transactions that have not reached their peak default periods. Moreover, Ex-Im has not maintained data needed to compare the performance of newer books of business with more seasoned books at comparable points in time, a type of analysis recommended by federal banking regulators.

Why GAO Did This Study

This testimony discusses GAO's recent work on the U.S. Export-Import Bank (Ex-Im). Ex-Im serves as the official export credit agency of the United States and helps U.S. firms export goods and services by providing a range of financial products, including direct loans, loan guarantees, and insurance. Ex-Im's business volume has grown dramatically in recent years. From 2008 through 2012, Ex-Im's exposure--that is, its total outstanding financial commitments--rose from $58.5 billion to $106.6 billion. Factors associated with this growth include the reduced availability of private-sector financing following the 2007-2009 financial crisis. The rapid increase in business has challenged Ex-Im's ability to plan for and manage its portfolio.

This testimony today draws on two reports GAO issued in March and May of this year in response to requirements in the Export-Import Bank Reauthorization Act of 2012 (Reauthorization Act). The act required GAO to assess aspects of Ex-Im's risk management and 2012 Business Plan in the context of the agency's growth. The act also increased the statutory ceiling on the agency's total exposure (exposure limit). This testimony discusses Ex-Im's efforts to (1) forecast exposure levels, (2) manage financial risks and estimate losses, and (3) manage its workload.

For more information contact Mathew J. Scire at (202) 512-8678 or sciremj@gao.gov.