It's a common problem: companies seeking to expand their borders and delve deep into emerging markets are often held back by weaker banking structures abroad. As countries in Latin America, Asia and Eastern Europe seek to attract foreign capital, they know that lasting trade partners need Western-standards of transparency, risk insurance and trade acumen to ensure viable import and export relationships.

But providing that transparency is rarely as easy it sounds.

In countries where the foundations for economic growth and foreign commerce exist and are primed for takeoff, the inadequacies of the banking system are particularly galling.

Turkey has historically been a prime example of this problem. One of the most promising emerging markets this decade, the challenge of trade with Turkey arises from a fundamental lack of capital markets. As the middle class begins to exert economic strength, it hungers for mid- and long-term financing options to purchase goods and services over time. At present, many local banks are solely able to offer auto loans on a six-month basis, and home mortgages on a yearly basis. Not only does this tie up liquidity options for consumers, it fundamentally hinders banks from longer-term, interest-generating relationships that create more loans and stable lending platforms. It also inhibits banks from backing larger and more lucrative critical infrastructure projects.

In 1971, the U.S. Government formed the Overseas Private Investment Corporation (OPIC) to help countries like Turkey with this very problem. A philosophical extension of the Marshall Plan, OPIC helps U.S. businesses invest overseas, fosters economic development in new and emerging markets and complements the private sector in managing risks associated with direct foreign investment. OPIC's political risk insurance and financing currently help U.S. businesses invest in more than 150 emerging markets worldwide. The results of this marriage between overseas investment and risk management have led to $164 billion worth of investments that have generated $13 billion in host-government revenues and more than 732,000 host-country jobs. Not to mention, OPIC projects have also generated $69 billion in U.S. exports and created more than 264,000 American jobs here at home.

OPIC's track record of opportunity and success first attracted National City Bank's international division. Based in Cleveland, Ohio, the 160-year-old bank with more than $140 billion in assets supports corporate and retail clients throughout the Midwest.

"Our goal is to limit the number of transactions declined for credit reasons. We want to find creative ways to get deals done using a variety of risk mitigation techniques," explains George Fowler, senior vice president of International Markets and Financial Institutions. Working with OPIC offered an institutional backstop that hadn't previously been employed until 2003, when National City signed a Global Framework Agreement (GFA) for $35 million to extend credit in emerging markets on a delegated lending basis to middle-market companies worldwide. National City makes credit and pricing decisions and OPIC reviews every deal to ensure it is in compliance with international policy issues such as worker's rights, environmental law and that each one is economically beneficial to the host country and the U.S.

To date, National City has lent over $75 million to strong and stable Turkish banks, such as Denizbank and Garanti Bank among others, and in April signed a second GFA, bringing its lending capacity under OPIC to $235 million. "OPIC sees the National City Bank facility as an important means to provide term capital to financial institutions in Turkey that would otherwise not have access to the kind of long-term funding that would enable them to grow their businesses," commented Robert Drumheller, OPIC vice president of structured finance.

"For us, working with OPIC was a perfect fit," said Fowler. "Without overseas offices, we didn't want to be in the position of monitoring the progress on a project from the U.S. By working with foreign banks that understand the local economy and projects, we're simultaneously increasing their capacity to manage deals while reducing our own risk and that of our U.S. customers over time. Our OPIC strategy sets us apart from other banks with the usual range of services. With this vehicle we have been able to form great relationships at the very highest levels of these banks, and that has led to enormous growth in our trade business."

"There's a great deal of pride in what we've accomplished with National City and OPIC," said Ms. Nesrin Sungu, executive vice president of Financial Institutions at Denizbank. "We helped build a hospital wing, a port container and fortify our own lending institution. These are things that not only our businesses benefit from, but rather that which benefits all of Turkish society."

Why Turkey?

According to various economic indicators, the Turkish market has been getting much more vibrant the last several years. Even before the possibility of its accession to the European Union, the political situation had been stabilizing, banking sector reforms were taking hold, and the economy turning around. By even conservative accounts, Turkey seems well positioned for several years of sustained growth as a major supplier to Western Europe and as a significant consumer of American products, especially capital goods.

"For National City, we happened to be in the right place at the right time in Turkey," said Donglei Ji, vice president and Turkey country manager. "We had been calling there for a few years and business was starting to grow, but our product offerings were akin to those of other banks: syndicated loans and lines of credit. In 2003, Turkish banks were having difficulty acquiring loans with tenors beyond 12-18 months. We were offered five year funding through OPIC and naturally that got some attention. To date, we have closed seven deals in Turkey and have a couple of others in the pipeline."

National City's transactions with OPIC do appear to be a clear differentiator from other, mid-tier and larger banks doing business in emerging markets, although it isn't seeking to 'specialize' in OPIC deals per se. "OPIC is one of several programs that we utilize to make transactions happen in emerging markets," said Bob Count, senior vice president and manager of Structured Trade Finance for National City.

Clearly, the bank's goal is to leverage its strong relationships with local banks to pave new and safer pathways for its customers at home. According to Fowler's team, they have already experienced increased export activities of high volume commodities such as coal, chemicals, and machinery from its Midwestern clients.

What goes around comes around

As Turkish banks reap the benefits of long term financing options, U.S. businesses are already reaping rewards. Medical equipment needed for the hospital wing project in Istanbul was purchased from American companies and likewise, automated teller machines (ATMs) and other banking equipment used to support banking infrastructure programs were also obtained from the U.S. But, the full benefit seems more long-term.

"By minimizing overall risk to National City and our clients, we're able to help companies explore emerging markets and developing countries with confidence, based on great relationships with local banks and creative financing methods that are uncommon to most banks," explained Fowler. "These deals have expanded our ability to underwrite international transactions and act as a guide to middle market companies trying to blaze a new trail in international trade. We believe the possibilities are endless."

We do not intend to limit our activities to Turkey," said Fowler. "In fact, we are currently in negotiations to use our GFA in several other countries including Brazil, Mexico, Russia, the Philippines and Indonesia, among others. Our objective is to establish ourselves in these markets, develop relationships with local banks and be in a position to help our U.S. customers grow their businesses there and at home."