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Derivatives

U.K. Government Agency Enters First Default Swap

The U.K.'sExport Credits Guarantee Department, a government agency responsible for facilitating and insuring British export companies, has entered its first credit-default swaps to hedge risk on loans in China and South Africa. The move follows the creation of an active portfolio management team, which was charged with putting the agency's portfolio in better shape, providing stability and developing a private market for export credit risks (DW, 2/3/02).

Azara Bibi, spokeswoman in London, said it started with China and South Africa to run a pilot scheme, but does not rule out entering contracts referenced to other countries. Bibi said the agency chose to use default swaps rather than reinsurance or securitization because they offer "digestible" amounts of risk.

The agency has GBP1.85 billion (USD2.9 billion) of exposure to China and GBP1.37 billion of exposure to South Africa, according to its annual report.

 

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