In the  May 30, 2012 reauthorization, Congress increased Ex-Im’s exposure limit  to $120 billion, with provisions for additional increases to $130 billion in  2013, and $140 billion in 2014. 1). 2). Forecasting Processes Ex-Im Used for Its Business Plan and Other Estimates Have Weaknesses

The Ex-Im Business Plan concluded that the exposure limits Congress  placed on the bank in the Reauthorization Act were appropriate, but the  exposure forecast model Ex-Im used to justify its conclusion relied on  authorization forecasts and assumptions about repayments that have a  degree of uncertainty that was not accounted for in Ex-Im’s forecast. Although this exposure is closer to its exposure limit than it has  been at year-end in recent years, it supports Ex-Im’s conclusion that the  congressional limits are appropriate. 3). For example, Ex-Im reviews  aircraft production and delivery schedules to determine when financing for  new aircraft is expected to be needed. Ex-Im’s data on previous authorizations show that Ex-Im’s recent budget  forecasts underestimated Ex-Im’s authorizations. 4). Ex-Im’s Business Plan notes that few could have predicted the financial  crisis of 2007-2009, which led to a significant contraction in commercial  lending and a sharp increase in demand for Ex-Im financing. Although the authorization forecast is uncertain and key assumptions  about repayments affect the results, Ex-Im did not conduct sensitivity  analyses to assess and report the range of various outcomes. Additionally, Ex- Im does not routinely report the performance of its subportfolios relating  to the small business, sub-Saharan Africa, and renewable energy  mandates, although these mandates encourage Ex-Im to undertake  transactions in these subportfolios and their performance differs from the  overall Ex-Im portfolio. While the plan provided  historical data on overall risk rating and portfolio concentration in 2008  and 2012, such data did not reflect the projected changes of composition  or the risks of Ex-Im’s subportfolios. Ex-Im Has Not Routinely Reported Risk of Loss Related to Three Congressional Mandates

			Business Plan Did Not Provide Risk Rating Data to Support Its Risk Conclusions on Congressional Mandates

While Ex-Im included an assessment of the risk of loss associated with  implementing the three congressional mandates in its Business Plan as  required by the Reauthorization Act, Ex-Im missed the opportunity to  present any risk rating data to support its risk evaluations, though this  was not required. Ex-Im’s Business Plan’s Resource Analysis Was Limited and Growing Congressional Mandated Targets Challenge Bank Resources

In the Business Plan, Ex-Im’s response to the reauthorization requirement  to assess its resources was limited and further details were not included  pending OMB review of Ex-Im’s 2014 budget request. From 2008 through  2012, Ex-Im experienced rapid growth in authorizations while its staff and  administrative budget level remained relatively flat. Ex-Im concurred with our  recommendation. Ex-Im projects in its Business Plan that it will be  challenged to meet the 20 percent mandate in 2013 or 2014 because the  dollar amount of its overall growth will continue outpacing its small  business activity. Ex-Im officials stated that additional administrative resources would not  enable it to meet its renewable energy target, as its inability to meet the  target results from a lack of demand for renewable energy export  financing. These assumptions and forecasts  should be supported by historical data and experience. In addition, a  sensitivity assessment of the effect of these assumptions should be  presented to management. Reporting such  information would be consistent with OMB and federal banking regulator  guidance as well as federal internal control standards. It is important to communicate the effect of  these mandated targets on Ex-Im operations to external stakeholders,  such as Congress, and the potential impacts percentage-based targets  may have on the agency’s resources and ability to achieve its goals. Recommendations for Executive Action

To provide Congress with the appropriate information necessary to make  decisions on Ex-Im’s exposure limits and targets, we recommend that the  Chairman of the Export-Import Bank of the United States take the  following four actions:  To improve the accuracy of its forecasts of exposure and authorizations,  Ex-Im should  compare previous forecasts and key assumptions to actual results  and adjust its forecast models to incorporate previous experience; and assess the sensitivity of the exposure forecast model to key  assumptions and authorization estimates and identify and report the  range of forecasts based on this analysis. To help Congress and Ex-Im management understand the performance  and risk associated with its subportfolios of transactions supporting the  small business, sub-Saharan Africa, and renewable energy mandates,  Ex-Im should routinely report financial performance information, including  the default rate and risk rating, of these transactions at the subportfolio  level. Appendix I: Objectives, Scope, and Methodology

Our objectives were to examine the extent to which the Business Plan  and analyses of the Export-Import Bank (Ex-Im): (1) justify bank exposure  limits; (2) evaluate Ex-Im’s risk of loss associated with the increased  exposure limit, the changing composition of exposure, and compliance  with congressional mandates; and (3) analyze the adequacy of Ex-Im  resources to manage authorizations and comply with congressional  mandates under the proposed exposure limits. To assess the extent to which Ex-Im’s Business Plan and analyses  evaluate the risk of loss associated with Ex-Im’s increased exposure limit,  the changing composition of exposure, and compliance with  congressional mandates, we reviewed agency data and documentation— including Ex-Im’s financial performance data, annual reports, and  quarterly default rate reports.
Why GAO Did This Study

Ex-Im helps U.S. firms export goods and services by providing a range of financial products. Following the 2007-2009 financial crisis, increased demand resulted in rapid increases in Ex-Im's portfolio and exposure. The Export-Import Bank Reauthorization Act of 2012 reauthorized Ex-Im through fiscal year 2014 and, as a condition of raising Ex-Im's exposure limit in 2013, required Ex-Im to prepare a report with a business plan and analyses of key operational elements. The act also directed GAO to analyze the Business Plan. This report discusses the extent to which Ex-Im's Business Plan and analyses (1) justify bank exposure limits; (2) evaluate the risk of loss associated with the increased exposure limit, changing composition of exposure, and compliance with congressional mandates; and (3) analyze the adequacy of Ex-Im resources to manage authorizations and comply with congressional mandates. GAO reviewed Ex-Im's Business Plan, analyses, and other reports, and interviewed Ex-Im officials.

What GAO Found

While the Export-Import Bank (Ex-Im) Business Plan reported that Ex-Im's exposure limits were appropriate, the forecasting process used to reach this conclusion has weaknesses. Congress increased the Ex-Im exposure limit--the limit on Ex-Im's total aggregate outstanding amount of financing--to $120 billion in 2012, with provisions for additional increases to $130 billion in 2013 and $140 billion in 2014. Although Ex-Im's forecast model is sensitive to key assumptions, GAO found that Ex-Im did not reassess these assumptions to reflect changing conditions or conduct sensitivity analyses to assess and report the range of potential outcomes. GAO used historical data in lieu of these assumptions and found that Ex-Im's forecast of exposure could be higher than the limit set by Congress for 2014. GAO's cost guidance calls for agencies' assumptions and forecasts to be supported by historical data and experience, and a sensitivity analysis, which can assess the effect of changes in assumptions. Because Ex-Im has not taken these steps, the reliability of its forecasts is diminished. This is of particular concern because Ex-Im projects that its outstanding financing in the future will be closer to its exposure limit than it has been historically. Consequently, any forecast errors could result in the bank having to take actions, such as delaying financing for creditworthy projects, to avoid exceeding its limit.
The Business Plan provided limited analysis of Ex-Im's risk of loss. First, Ex-Im did not provide some forecast data because of pending Office of Management and Budget (OMB) approval of key analyses. For example, Ex-Im did not include conclusions on Ex-Im's overall risk of loss and risk by industry. Second, Ex-Im included only limited analysis to support its conclusions that changes in its portfolio--including subportfolios of transactions supporting congressional mandates for small business, sub-Saharan Africa, and renewable energy--would not affect its risk of loss. In addition, Ex-Im has not routinely analyzed or reported the risk rating and default rate of subportfolios that respond to these mandates, although their performance may differ from the overall portfolio. OMB and banking regulator guidance call for entities, including federal agencies, to be able to provide comprehensive information by subportfolio, product, and other financial performance metrics. By not routinely analyzing and reporting financial performance for mandated transactions, Ex-Im decreases its ability to evaluate such performance at the subportfolio level and inform Congress of related risks.
The Business Plan provided limited analysis of the adequacy of Ex-Im's resources and ability to meet congressional mandates. From 2008 through 2012, Ex-Im's administrative resources remained relatively flat as its portfolio grew. Ex-Im does not expect to meet its small business or renewable energy mandate targets in 2013 or 2014. These mandate targets are fixed to a percentage of the dollar value of Ex-Im's total authorizations. Although Ex-Im has dedicated resources to support these mandates, as Ex-Im authorizations have grown, the growth in mandate targets has outpaced Ex-Im's increasing support. Ex-Im projects that the targets will continue to outpace its growth in support through 2014. Mandate transactions also are resource-intensive and Ex-Im's ability to expand its renewable energy portfolio may be constrained by the size of the overall market. Communicating the effect of percentage-based targets on Ex-Im's resources and ability to achieve its goals to external stakeholders, such as Congress, is consistent with federal internal control standards.

What GAO Recommends

Ex-Im should (1) adjust its forecasting model based on previous experience, (2) assess and report the sensitivity of the exposure forecast model to key assumptions and estimates, (3) routinely report the financial performance of subportfolios supporting congressional mandates, and (4) provide Congress with additional information on the resources associated with meeting mandated targets. Ex-Im concurred with our recommendations.