Guarantee Schemes response to the financial crisis

XIV Foro Iberoamericano de Sistemas de Garantía – Second Panel

Marcel RoySecretary General

AECMRue Washington 40, 1050 Brussels, Belgium

Tel/Fax: 00 32 / 2 640 51 77 – info@aecm.be / www.aecm.be

AECM Background

34 active schemes in 18 countries

Key figures (31.12.2008, in €1.000.000)

– Own Funds € 6.154

– Guarantees issued in 2007 € 23.601

– Outstanding commitments € 57.417

Leverage Cap / commitments > 9 x

– SMEs beneficiaries > 2 Million

Types of Guarantee products offered

– Generally: Straight-forward loan guarantees for SMEs:– Guarantee issued on behalf of SME to bank to substitute missing collateral

– In case of default, GS pays out amount of loan covered by guarantee (usually between 50 – 80% to lender

– Offered for all stages of SME life-cycle (Start-up – Transfer)

– But also other types of guarantee products offered by some Guarantee schemes:Guarantees for: Micro loans, leasing, factoring, mezzanine finance, risk capital, internationalization, projects, EU funding, etc.

Strong market demand for guarantees

2000 - 2007: Portfolio growth by 89,8 %

0

10.000.000

20.000.000

30.000.000

40.000.000

50.000.000

60.000.000

2000 2001 2002 2003 2004 2005 2006 2007Years

AECM volumes guarantees in portfolio

Portfolio guarantees

Impact of the crisis

SME financial situation:

SMEs are impacted in various ways: • Banks need to manage balance sheets and increase

regulatory capital positions => risk of credit rationing

• Increase of payment delays => risk default of otherwise healthy SMEs

• SMEs are affected as suppliers to large companies, particularly in problem sectors (automotive and building)

• Especially retail and exporting companies struggle with falling demand

Impact of the crisis

Access to finance situation: Contrasted picture according to MS:

• Intensity of crisis impact very different from country to country, particularly severe in e. g. Hungary, Latvia, Estonia, Spain

• Supply: More difficult access to finance for SMEs (credit conditions tightened, more selective credit policy according to creditworthiness, reduction or cancellation of credit lines)

• Demand: Decreasing demand for investment loans, increasing demand for working capital loans

Impact of the crisis

Access to finance situation:

Policy consideration:

– Micro economic level: Prevent failure of otherwise healthy SMEs due to economic domino effect;

– Macro-economic level: Large-scale failure of SMEs should be avoided to safeguard industrial tissue and acceptable levels of employment;

The role of guarantee schemes

1 – Public support is crucial:

Role of guarantee schemes:

– ensure healthy SMEs with economically sound business project can obtain access to loan finance

AECM member organizations:

– Are both public and private (mutual) entities, but

– Both rely on public support for their mission (direct funding, counter-guarantees, etc.)

Public authorities have been swift to create the necessary framework to ensure guarantee schemes could offer an adequate product supply to SMEs facing difficulties.

The role of guarantee schemes

1 – Public support is crucial (continued):

Activities by public authorities:

– EU level:

• Temporary state aid framework: temporary relaxation of state aid rules to respond to crisis situation (higher guarantee coverage, possibility for subsidised guarantee premiums, etc.)

• Competitiveness and Innovation Framework Programme (CIP): Counterguarantees managed by European Investment Fund on behalf of the European Commission

– Member State level:

• Use of national funding and Structural Funds to support guarantee activity

The role of guarantee schemes

1 – Public support is crucial (continued):

Activities by public authorities:

– Member State level:

• Concrete actions to boost guarantee business:

– Increase of Guarantee schemes’ own funds

– Counterguarantee:

» Creation of new counterguarantee funds

» Existing counterguarantee funds: increase of volume, of coverage rate and / or sectoral coverage

The role of guarantee schemes

2 – Concrete actions by guarantee societies:

a) Adaptation of existing guarantee supply:

– increase of coverage rates

– Decrease of guarantee premiums and fees

– process simplifications

– New guarantee products that respond to the crisis (often based on Temporary framework and therefore limited until end 2010)

The role of guarantee schemes

2 – Concrete actions by guarantee societies:

b) Provision of other non-guarantee products and services (often linked to a guarantee product):

– Micro-credit

– Mezzanine finance

– Loans with preferential interest rates

– etc.

c) Mediation services

– The guarantee societies in some cases take an active role in mediating between the banks and the SME customer to reschedule the debt and find other solutions

The role of guarantee schemes

3 – Some examples of actions by guarantee societies:

SPGM and the Mutual Guarantee Societies, Portugal: – Starting July 2008, the Portuguese Government launched 4 credit lines (“PME

Investe”, total volume € 4 bn) to ensure SME access to finance. The initiative involved both the banking sector and the National Mutual Guarantee System..

– Main characteristics of instrument: • Interest rates negotiated with the Banks and partially subsidized• Mutual guarantee with a coverage of 50% or 75% for each operation, the guarantee premiums

being fully subsidized by the State (coverage rate higher for micro and small enterprises)• Long-term maturities (up to 7 years)• Very short decision period (between 3 and 10 working days)• Automatization of the circulation and information cycle for the decision-making process between

the parties

– By mid-August 2009, 45.000 operations approved, corresponding to a total of € 4,5 billion in accessed financing and about € 2,5 billion in guarantees. To date, 25.000 of these operations have been signed amounting to € 2,5 billion of financing and € 1,5 billion in guarantees. The remaining volume is being processed.

The role of guarantee schemes

3 – Some examples of actions by guarantee societies:

German guarantee banks:

– Maximum guarantee amount increased from € 1,5 million to € 2 million, maximum coverage rate from 80% to 90%

– Counterguarantee coverage rate raised from 65% to 75% (OFS) and 80% to 90% (NFS). Content of working capital in loan up from 35% to 50%. Delegation of decision for guarantees of less than € 150.000 to guarantee banks.

– Increase of availability of guaranteed mezzanine capital from € 1 million to 2,5 million.

TEMPME, Greece:

– New working capital loan guarantee programme: 80% guarantee for 3yrs for SMEs with less than 50 employees. Loans at fixed priviledged interest rates (Euribor + 2,1 points). Reduction guarantee fee from 1% to 0,25%. Simplified application process

The role of guarantee schemes

3 – Some examples of actions by guarantee societies:

National Credit Guarantee Fund for SMEs, Romania:

– Adjustment of risk policy: Increase of leverage factor from 5x own funds to 9x own funds. Increase of the ceiling in the third (riskier) SME category to compensate for structural shift towards stricter criteria of SME bank rating

– Adjustment of existing guarantee products: coverage rate increase to 80%, simplification of the guarantee commission for SME customers.

– New product: “Guarantee commitment”: Issued directly to SME and valid after endorsement by partner bank. Simplified and faster analysis and approval process

– Partner banks were induced to reduced over-collateralisation (specific Romanian pb) to optimise the guarantee portfolio

– Creation of a national Counterugarantee fund by Romanian Government

The role of guarantee schemes

3 – Some examples of actions by guarantee societies:

SIAGI - France:

– SIAGI (and SOCAMA) signed CIP-Counterguarantee agreements with the EIF in Autumn 2008. Micro-loan and business transfer loans with reduced requirements for personal guarantees

– Launch of new products:

• Guarantees for Growth companies: Loan ceiling € 250.000, no personal guarantees required

• Short term guarantee: Covers banks on working capital needs of SME customer. Can go up to 70% when co-guaranteed with a local or regional authority

• « Rebound guarantee »: Guarantee for shoring up existing credit lines or newly issued credit lines

Thank you for listening