Guarantee Schemes response to the financial crisis APEC Symposium on SME strategies to manage the impact of the Global Financial Crisis – Session II: Managing the liquidity crisis and the credit crunch Marcel Roy Secretary General AECM Rue Washington 40, 1050 Brussels, Belgium Tel/Fax: / – /

AECM Background 34 active schemes in 18 countries Key figures ( , in € ) – Own Funds € – Guarantees issued in 2007 € – Outstanding commitments € Leverage Cap / commitments > 10 x – SMEs beneficiaries > 1,7 Million

Strong market demand for guarantees : Portfolio growth by 89,8 %

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 SMEs are affected as suppliers to large companies, particularly in problem sectors (automotive and building) Increase of payment delays => risk default of otherwise healthy SMEs

Impact of the crisis Access to finance situation: Contrasted picture according to MS: Intensity of crisis impact very different, from very low (Czech Rep., Slovakia) to very pronounced (Hungary, Estonia) 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

Guarantee schemes’s strength in crisis – Unique intermediary function between SMEs, lenders and Public authorities, based on consensus, added value and shared responsibility for all parties involved Mutual Guarantee Scheme Lender Public Authorities SME customer

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.

Guarantee schemes’ response High degree of added value of guarantees for banks: Risk sharing: Up to 80% of credit amount Reliable partner: Specialized entities subject to supervision and prudently managed First class collateral: Often payable on first demand and for face value of guarantee amount Mitigation effect: Presence of guarantee can lower regulatory funds requirements (subject to conditions) Specific credit assessment: Knowledge of local context and SME sector (qual. Factors), individual assessment process Development of new lending business: Build-up of SME portfolio with cross-selling opportunities

Guarantee schemes’ response High degree of added value of guarantees for SMEs: Access to finance for economically sound projects Recognition of qualitative factors in MGS risk analysis Support services and third party analysis by sectoral specialists of business plan and model Non-profit orientation of Guarantee scheme Intermediary function of Scheme towards lender In mutual schemes, participation in management of scheme

Guarantee schemes’ response High degree of added value of guarantees for public authorities: – Individual risk assessment and follow-up – Financial intermediary for public policy: Counter-guarantee element (reg., nat., EIF-CIP) => Cost effective leverage effect of MGS’ regulatory own funds: Leverage effect of 10 x € 1 with e.g. a 50% coverage : – € 10 of guarantees – € 20 of bank loans – even higher amount of final investment

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