Soviet Food Credits: Banks Applaud U.S. Expansion of Guarantees

U.S. and European banks are warming up to the idea of lending to the Soviet Union in light of a Bush administration decision to expand agricultural credit guarantees.

It is good that the administration "responded so quickly," said David Kling, a First Chicago Corp. vice president. "It should make it easier for the bank market to accommodate the financing."

Administration officials announced last week that they were raising guarantees on export credits to the Soviet Union to 100% of principal, from 98%. Guarantees on interest were also raised to the same rate as 52-week Treasury bills, or 5.57%, from 4.5%

Limited Amount Affected

The guarantees cover about $196.8 million worth of export credits out of $2.5 billion in guarantees the administration has approved for the Soviets.

"The new terms are about as advantageous as you can get without guaranteeing all the interest," said Gene Bovee, senior vice president at Denver-based CoBank-National Bank for Cooperatives, a $12.5 billion-asset institution that specializes in lending to agricultural cooperatives.

"They've made the program extremely bankable from a credit-risk standpoint," Mr. Bovee said, "and that's been the basic hangup."

About $1.7 billion in export guarantees, available through the Commodity Credit Corp., have so far been used by the Soviets.

A Department of Agriculture spokesman said that the administration is considering extending guarantees on an additional $585 million that will become available Oct. 1.

Shortages Expected

The guarantees are part of an administration initiative to help the Soviet Union with grain shipments needed to forestall food shortages expected this winter.

The move came after growing pressure on the administration from U.S. and foreign banks that had balked at supplying additional credits. The financial institutions were wary of growing Soviet credit risk due to the country's political turmoil.

European bankers also said last week that the added guarantees would make it easier for them to resume lending to the Soviet Union.

"It's possible that we can participate in this new tranche," said Gerard Decourcelle, general manager in New York for France's Banque Nationale de Paris, a major lender in the field.

Deadline for Use

The nearly $200 million in extended guarantees must be used by today, the last day of the U.S. fiscal year.

Remaining guarantees will become available Tuesday.

However, U.S. bankers cautioned that the willingness to give new credits to the Soviet Union would still depend on the rates offered.

A banker who declined to be identified estimated one-quarter to three-eighths of a percentage point above the benchmark London interbank offered rate would be required. Libor is about 5.938% for six months.

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