László Tóth, AVHGA, Hungary

Credit Guarantees –
Hungarian Model
Case of Rural Credit Guarantee Foundation ( AVHGA)
László Tóth
Deputy CEO
3 October 2013
Rural Credit Guarantee Foundation |
Case of AVHGA
Rural Credit Guarantee Foundation (AVHGA)
• Rural Credit Guarantee Foundation was established under the PHARE
Programme in 1991
• Initial capitalisation: EU (PHARE) + Hungarian Ministry of Agriculture + 5
commercial banks
• Legal form: foundation (not-for-profit)
• The mission of the Foundation is to improve access to finance of rural and
agricultural SMEs
• Since 2011 operating as a financial enterprise equivalent to banks (Basel 2 CRD)
• The Foundation is in partnership with 150 financial institutions (banks, saving
cooperatives, leasing and factoring companies)
• The credit guarantee can cover loans, bank guarantees, factoring and leasing
• State counter – guarantee 85%
Rural Credit Guarantee Foundation |
Case of AVHGA
Portfolio
EUR 440 million
EUR 380 million
Rural Credit Guarantee Foundation |
Case of AVHGA
Focus on agricultural and rural development
• Agriculture and food industry: 73% of the portfolio (2012)
• Specific products for agriculture and rural development
– Examples: warehouse receipt financing, loans for agricultural service provider
(„integrator”), financing of advances on EU subsidies
• Pricing: lower fees for targeted groups
The fee actually payable
@ 50% guarantee rate
Agricultural sector
0,25%
Other sectors
0,3125%
• Segmentation: designed to help the agricultural SMEs
Market fee 50% guarantee rate
Working capital loan
Investment loan
Agricultural sector
1,22%
1,04%
Other sectors
2,26%
2,59%
Rural Credit Guarantee Foundation |
Case of AVHGA
Other conditions
• 20-80% coverage rate
• Duration maximum 25 years
• Collateral requirement: minimum 20-30%, depending on rating
• Guarantee assignment process: 5-8 working days
• Maximum guarantee amount per company = 2,5 Million EUR
Rural Credit Guarantee Foundation |
The Hungarian Guarantee Model
State
Counterguarantee
Guarantee
fee subsidy
Guarantee societies
(GS)
Guarantee
Banks
Loan
SMEs
Rural Credit Guarantee Foundation |
State:
•Co-founder of the guarantee schemes
•Provider of counter-guarantee (85%)
•Provider of fee subsidy
•Regulator
Guarantee societies:
•5 players, different legal forms
•Not-for-profit institutions
•No regional or sectorial focus (excl.
AVHGA)
•No physical network
•First call guarantee
•Risk taking up to 80 %
•No mutuality
•Individual guarantee vs portfolio
guarantee
•Main players are equivalent to banks
under Basel 2
The Hungarian Guarantee Model
State
Counterguarantee
Guarantee
fee subsidy
Guarantee societies
(GS)
Guarantee
Banks
Loan
SMEs
Rural Credit Guarantee Foundation |
Banks:
•Own products + government loan
programmes
•Bilateral cooperation agreement with
GS
•Guarantee applications submitted
through banks
SMEs:
•All SMEs are eligible for guarantee in
principle
•Clients to pay guarantee fee
•Clients to provide collateral
•No direct contact with the guarantee
societies
Advantages of guarantee for stakeholders
• Advantages for SMEs:
Strengthens the bargaining power of the entrepreneur (state counter-guarantee )
Easier access to finance (lower interest rates, higher loan amount, longer term)
Subsidized guarantee fee (since 2013) @50% guarantee rate: 0,25-0,3125 % p.a.
• Advantages for Banks:
Risk mitigation (sharing) tool
Lower capital requirements (Basel 2) First call  immediate return in case of default
• Advantages for the State
Helping SMEs’ access to finance
Boosting economic growth
Rural Credit Guarantee Foundation |
Ways for calculating state aid element of credit guarantee
+ Market (reference) fee: regulated by EU
- Fee actually payable: decision of guarantee inst.
= State aid element: EU categories
Methods:
1. Proportional method
Maximum guarantee amount ≤ agriculture 7,5 * 7500 EUR
≤ non-agriculture 7,5 *200.000 EUR
2. ”Safe-harbour” premium
3. Methodology
Used by most of the players
Rural Credit Guarantee Foundation |
Case of AVHGA
State aid categories used by AVHGA
1.
De minimis aid in the sector of agricultural production
- EUR 7 500/ 3 years
2.
General de minimis (rural activity, processing and marketing of agricultural products)
– EUR 200 000/ 3 years
3.
De minimis aid in the fisheries sector
– EUR 30 000/ 3 years
4.
Agriculture block exemption
5.
Notified state aid
6.
No state aid category– market price
Rural Credit Guarantee Foundation |
Methodology
The process through which a guarantee organization calculates its market fee
(„reference fee”) and, consequently, the state-aid element of its transactions.
Market fee ≥ cost of risk + cost of administration + cost of capital
Market fee =
+ Defaults (10-years average in %)  source: accounting
- Recoveries (10-years average in %)  source: accounting
+ Administration costs + depreciation (10-years average in %)  source:
accounting
+ Risk premium (8 % *4% = 0,32%, fixed)  source: Guarantee Notice
Rural Credit Guarantee Foundation |
Thank you for your
kind attention!
Rural Credit Guarantee Foundation |