The economic slowdown in the United States and Britain has led to an increase in companies failing to pay local exporters, resulting in an 18 per cent rise in claims to the government-run Export Credit Insurance Corp (ECIC) last year. Cheung Kam-kay, the newly appointed commissioner of the ECIC, which provides credit insurance for exporters against non-payment for their goods and services by overseas buyers, said he expected the number of claims to continue to soar in the next six months. 'With the economic slowdown in the US, Britain and Japan, we expect the next six months to be a difficult time for local exporters and to see more defaults on payments,' Mr Cheung told Business Post in an exclusive interview. Founded in 1966 to provide export credit insurance to Hong Kong exporters against non-payment risks, the ECIC guarantees liabilities up to HK$10 billion. For the year to the end of March, gross claims paid by the ECIC to local exporters who did not receive payment from overseas buyers increased 18 per cent to HK$67 million - the highest year-on-year increase in claims ever. In the 12 months to the end of March last year, claims dropped 51 per cent. The fall in claims followed an increase of 11 per cent in gross claims in the 12 months to March 1999 due to the Asian financial turmoil. Mr Cheung said the recent growth in claims was mainly due to deteriorating economic conditions and also to the fact more Hong Kong exporters had bought insurance from the ECIC. The amount of business insured by the ECIC in the year to March 31 was HK$27.1 billion, a 3 per cent year-on-year increase. While most claims were made against companies which had defaulted on a payment, Mr Cheung said a significant proportion of claims were paid as a result of insolvency. ECIC pays insured exporters when debtors' payments are four months late. The ECIC data showed 37 per cent of the insurance it provided was for export trade with the United States and 18 per cent was for export trade with Britain. The bankruptcy of US online toy retailer eToys and another US retail shop, Frank's Nursery, have resulted in ECIC payments. Mr Cheung said many buyers, such as Frank's Nursery, were buying Christmas decorations from local exporters, but poor Christmas sales led to its insolvency. As a result, he said 'the first quarter was usually the worst period as many corporate failures and payment defaults appear after poor Christmas sales'. From April, the number of claims would decline and he said the worst would be usually over. Besides the US and Britain, 8 per cent of ECIC's insurance business covers exports to Germany, 4 per cent to China and 4 per cent to Japan. As Japanese business is only a small proportion of the total, the ECIC has not been hit by Japan's financial crisis, though the country has seen its highest level of corporate bankruptcies since World War II. With the increased rate of bankruptcies overseas, Mr Cheung said demand for credit insurance would grow. He said the ECIC's credit insurance sales would rise 6 per cent while gross claims would grow 1 per cent this year. Only 2,400 of the 100,000 exporters in Hong Kong purchase export credit insurance. Mr Cheung called on exporters to consider credit insurance cover to protect themselves during economic downturns in overseas markets. Exporters who got insurance cover from the ECIC used the insurance policy as collateral to get trade finance from one of 47 banks, he said. Banks have granted HK$380 million to exporters since this financing scheme began in May last year. The ECIC would strengthen its Internet services for exporters within the next six months, Mr Cheung said. At present, ECIC customers can check their account balance from the Internet. Mr Cheung said the ECIC would soon expand its e-commerce services to enable exporters to apply for expanded insurance cover or obtain credit insurance via the Internet.