04.06.2020 Green Light for business loans next week at the latest


Host: This is the joint program of the Bulgarian Development Bank and Darik Radio. Hello, I'm Ekaterina Katracheva. A program for the support of micro, small and medium enterprises affected by the COVID-19 crisis was launched a few days ago. These are companies with up to 250 employees or an annual turnover of less than BGN 97.5 million. Applicants must meet one of the following requirements:
- to have a decrease in turnover after the first quarter of 2020 compared to 2019;
- to have uncollected receivables from clients and/or outstanding amounts to suppliers after March 1 this year;
- to have discontinued import deliveries from the beginning of the year;
- have closed their production facilities and offices; or
- have reduced the number of their staff
Since the Development Bank guarantees the loans, they will be granted with significantly less collateral – no more than 20% and a grace period of 3 years, during which no installments will be paid on the principal and/or interest.
The measure also covers existing loans, where it will be possible to release the collateral on them. The Bulgarian-American Credit Bank, the first to join the program, accepts loan applications from June 1. The interest shown by the businesses in the first days after the start of the program has been remarkable, said Iliya Lingorski, chief economist of the Bulgarian Development Bank.

Iliya Lingorski: This shows the avalanche of inquiries at BACB, which were the first to sign and start working on the program. Our teams are working continuously with the fellow teams from the other commercial banks. We expect more agreements to be signed in the next week or two. One of the first agreements to be signed will be with the commercial bank, which has applied the largest estimated amount of loans on which the portfolio guarantee will be concluded with the special mandate given to us by the government and for which the capital was increased. This is a new matter, as this is the program notified under all state aid regulations and with the EU. This required a really 24-hour effort, both from our team and from the teams of the commercial banks. For all of us, this is a strange crisis of learning new techniques and I can only be grateful to both my colleagues in BDB and all the colleagues in the commercial banks who have expressed interest in the program, ten so far, who very often act in parallel with the other program, which provides access to liquidity and lending to individuals.

Host: You say 10 banks in total have expressed interest in joining the program. Remind us what this capital of BGN 500 million means in guarantees.

Iliya Lingorski: Our estimates, which coincide with the estimates of the principal and the government, are that we must have the readiness and potential to meet liquidity support needs of the order of BGN 2 billion, which we can do with this program. Here we are talking about access to finance of a total of BGN 2 billion, only for micro, small and medium enterprises. The portfolio guarantee works based on two main thresholds. One is 80% coverage on a separate project, on a separate loan and 30% on loans on the entire portfolio. This allows commercial banks to lend at much lower requirements to their clients for collateral and this is important to be said here, because in fact the collateral is the guarantee that the Bulgarian Development Bank provides under this special mandate from the government. Since this is subject to notification with the European Commission for state aid and all competition protection and state aid-related regulations, this type of guarantee is not just a guarantee from BDB, it is considered a public guarantee, i.e. it is a kind of quasi-state guarantee, which, of course, already gives commercial banks more confidence and peace of mind to be able to lend, to emphasize the purpose of this program, and this is not the last thing BDB will do this year. The aim of this program is to buffer very quickly all the main problems related to the access of small and medium enterprises to liquidity, in order not to turn these problems from lack of liquidity to bankruptcy. This is what we want to prevent, and this is what the government has given us a mandate for, which we have been following very strictly.

Host: You said "quickly", but to an outside eye and with a view to the fact that the latest anti-epidemic measures will soon be abolished, some people may say that things are happening slowly. Are there any reasons for the delay? Are commercial banks facing any difficulties?

Iliya Lingorski: Look, this is a program that is being launched in a record-breaking time in our country and we compare it with programs that are much easier to implement. Yet not only in our country. In fact, the Bulgarian Development Bank was one of the first development banks and a similar type of financial institution in the European Union, which was mandated by the government to announce such type of guarantee program. We must say that being in the European Union, of course, there is a technological path that needs to be followed and it is related to state aid notifications, to the implementation of all these regulations and, of course, there is a curve of acquiring new skills, which is very steep and we are successfully walking on with our partners in the commercial banks, both for them and for us. However, we must look at the instruments of the Bulgarian Development Bank as part of the whole package the government provides to meet the economic challenges. There are fiscal instruments, such as the 60:40 Measure. Fiscal measures are triggered instantly. They also have a shorter-term effect because they have to face the momentary blow of the crisis. With regard to the measures involving BDB, we first focused on what was most urgent, i.e. to provide resources to individuals. That program has been launched successfully, the banks have started working on it, and it does not require state aid notification. This program, however, will operate longer than, say, other longer-term measures. We are talking about a five-year guarantee here. It will provide loans with such, in some cases even longer, duration with a long grace period for the new loans of three years on interest and principal.

Host: What does this big grace period mean exactly – a three-year grace period, no interest payments, no principal payments? Will interest accrue in the period in which the payment begins?

Iliya Lingorski: Here it is about arrangement between clients and commercial banks, because the risk of each project may be different and the interest rates may also be different. This grace period means that the accrued interest and principal for the three-year period for the new loans will not be paid. The program also makes it possible to ease the conditions for existing loans that have become non-performing and problem due to the crisis. However, this applies only to loans, which were performing last year and are less than 90 days overdue. The aim is to give businesses whose loans are temporarily non-performing due to the current crisis a space to breath and for them to also obtain easier conditions for the existing loans and an opportunity to release some of the collateral that would, perhaps, be needed for their business plan, on the one hand, and, on the other hand, to get a space to breath - a six-month grace period for principal payments and three-months for interest payments. We are talking about circumstances existing at the time of establishing the state of emergency.
Host: What is the revolving guarantee under this program?

Iliya Lingorski: The revolving mechanism of the guarantee is simply an opportunity for the resource that is to be recovered to be available to cover new loans, new lending. What is important here to judge the mechanism on its merits? It is that the Bulgarian Development Bank shares the risk with the commercial banks, assuming the majority of it based on the mandate and the capital increase provided to us by the government and strictly within this framework. It is also important to note that we do all this based on many years of experience through the National Guarantee Fund in working with guarantee instruments, in partnership with commercial banks. They know us and we know them. What is new, however, is that this time we need to change our focus a bit and even our banking thinking that we are going to lend to people and businesses in difficulty. Usually in normal times, it is the opposite, right, you are looking for the good and promising and then you agree on the conditions under which you would invest in their development.

Host: Do you expect other support programs, other business support measures?

Iliya Lingorski: Our teams will continue to work on the development and offering of programs as measures to support the investment activities of small and medium enterprises. In the sense of not completely nullifying and suspending development plans that a number of businesses in our country have had in the last year, but for one reason or another related to the COVID-19 pandemic, they would postpone or stop completely.

Host: As with the other loans, those for individuals, it is best for those interested to contact the banks that announce joining the program.

Iliya Lingorski: Of course, first there are specifics that each bank receives on its own. We receive, process, and return information on many inquiries that come to us, but we are most effective when clients work with their commercial banks and the commercial banks work with us. That is how we will be able to help quickly and serve the most small and medium-sized enterprises and entrepreneurs.

Listen to the interview with the chief economist of BDB Iliya Lingorski here

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