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Export-Import Bank: Enhancements Needed in Credit Program Underwriting Policies and Procedures

GAO-19-43 Published: May 14, 2019. Publicly Released: May 14, 2019.
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Fast Facts

The Export-Import Bank helps finance U.S. companies' exports when private lenders are unable or unwilling to do so. The Bank is backed by the U.S. government—so taxpayers could be responsible for financial losses.

We reviewed the Bank's process to approve financing for exports and found that it appropriately assesses applicants' creditworthiness prior to approval. However, the Bank could improve how it oversees certain lenders authorized to make loans it guarantees, and how it conducts periodic program reviews.

We made two recommendations to enhance these processes.

 

Photo of a ship carrying U.S. exports

Photo of a ship carrying U.S. exports

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Highlights

What GAO Found

GAO found that Export-Import Bank's (EXIM) process for updating its underwriting policies and procedures was properly designed and implemented. EXIM's Loan, Guarantee and Insurance Manual (Manual) describes EXIM's underwriting policies and procedures for its short-, medium-, and long-term loans and loan guarantees. The Manual describes the responsibilities of divisions and loan officers involved in the underwriting process and is required to be updated at least annually, except for material changes (e.g., changes resulting from legislative actions or compliance with sanctions), which are required to be made as soon as possible.

EXIM has initiated a process to streamline the Manual, which consists of over 1,400 pages, by separating the policies and procedures, thus allowing for continuous reviews. The underwriting sections of the Manual are tentatively scheduled for review in 2019.

The primary guidance for designing and managing federal credit programs is Office of Management and Budget Circular A-129, Policies for Federal Credit Programs and Non-Tax Receivables. GAO found that EXIM‘s policies and procedures were consistent with three of five areas of federal guidance; two areas related to lender and servicer eligibility and risk sharing practices were partially consistent with federal guidance.

Applicant screening. EXIM's policies and procedures were consistent with guidance in that they require applicants to provide relevant financial information and assessments of applicant eligibility and creditworthiness.

Loan documentation. EXIM's process was consistent with guidance in that it requires the preparation of loan files, which include the application, credit reports, and related analyses, as well as collateral documentation and loan agreements.

Collateral requirements. EXIM's process was consistent with guidance in that it requires a security interest in the financed export items.

Lender and servicer eligibility. EXIM established eligibility and decertification procedures for short-term delegated authority lenders that were consistent with guidance. However, it did not establish similar procedures for medium-term delegated authority lenders.

Risk sharing practices. EXIM's process was generally consistent with guidance in that EXIM provides loan guarantee terms that officials stated were necessary to achieve program purposes. However, federal guidance also calls for an agency to periodically review programs in which the government bears more than 80 percent of any loss. While EXIM prepares various program reviews, it has not developed procedures to help ensure that its risk sharing practices are routinely reviewed.

Without enhancements to its policies and procedures, EXIM may allow lenders that are not qualified to underwrite transactions and runs the risk that it will not effectively review its programs.

Why GAO Did This Study

EXIM serves as the official export credit agency of the United States, providing a range of financial products to support the export of U.S. goods and services. Following the 2007–2009 financial crisis, demand for EXIM support increased. However, from July 2015 to May 2019, EXIM lacked a quorum on its Board of Directors and, as a result, was unable to approve medium- and long-term transactions greater than $10 million.

The Export-Import Bank Reauthorization Act of 2012 includes a provision for GAO to evaluate EXIM's underwriting process. This report discusses the extent to which EXIM's (1) process for updating its underwriting policies and procedures is properly designed and implemented and (2) underwriting policies and procedures for loan and loan guarantee transactions are consistent with guidance for managing federal credit programs. To address these objectives, GAO evaluated EXIM's underwriting policies and procedures against federal guidance and discussed the underwriting process with EXIM officials.

Recommendations

GAO is making two recommendations to enhance EXIM's policies and procedures related to (1) the use of medium-term delegated authority lenders and (2) periodic program reviews. EXIM concurred with GAO's recommendations and described actions planned to address them.

Recommendations for Executive Action

Agency Affected Recommendation Status
Export-Import Bank of the United States The Chief Operating Officer of EXIM should consider establishing documented policies and procedures for (1) determining medium-term delegated authority lenders' eligibility for continued participation in EXIM's programs and (2) decertifying or taking other appropriate actions for such lenders that do not meet compliance or eligibility standards. (Recommendation 1)
Closed – Implemented
EXIM concurred with this recommendation. In response, EXIM's Office of Board Authorized Finance established documented policies and procedures for (1) determining medium-term delegated authority lenders' eligibility for continued participation in EXIM's programs and (2) decertifying or taking other appropriate actions for such lenders that do not meet compliance or eligibility standards. These documented policies and procedures were completed in September 2020.
Export-Import Bank of the United States The Chief Operating Officer of EXIM should establish documented policies and procedures for periodically reviewing credit programs in which the government bears more than 80 percent of any loss to determine whether private sector lenders should bear a greater share of the risk. (Recommendation 2)
Closed – Implemented
EXIM concurred with this recommendation. In response, in December 2020, EXIM's Office of Chief Financial Officer established documented policies and procedures for periodically reviewing credit programs in which the government bears more than 80 percent of any loss to determine whether private sector lenders should bear a greater share of the risk.

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Topics

Best practicesCredit policiesCredit riskExport credit agenciesExport credit insuranceExport credit programInternational financial institutionsLoan guaranteesPolicies and proceduresReporting requirementsUnderwriting standardsCredit reportsEligibility criteria