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					Guarantee Schemes response to the financial crisis

   XIV Foro Iberoamericano de Sistemas de Garantía – Second Panel




                           Marcel Roy
                        Secretary General
                             AECM
          Rue 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            >9x

   –   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 %

                                       AECM volumes guarantees in portfolio


     60.000.000




     50.000.000




     40.000.000




     30.000.000
                                                                                            Portfolio guarantees



     20.000.000




     10.000.000




             0
                  2000   2001   2002        2003           2004   2005        2006   2007
                                                   Years
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