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Garantiqa Hitelgarancia Zrt.

dr. Márton Vadászdirector

„Guarantee Systems in European Countries- Searching for the Best Model”

Warsaw, February 9, 2011

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Garantiqa Hitelgarancia Zrt. (Garantiqa Creditguarantee Co. Ltd.)

Founded in December 1992

Subscribed capital: EUR 17.2 million (HUF 4,8 billion) (December 31, 2010)

Equity: EUR 68.3 million (HUF 19 billion)

Mission: to help SMEs’ access to financial resources by undertaking surety guarantees and thereby to enhance their development and improve their competitiveness.

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The role / cooperation of the government and the private sector

Ownership structure:

Hungarian Government, represented by

MFB (Hungarian Development Bank): 50.025%

+ Indirect state ownership: MFB 13.97%

Hungarian Export-Import Bank (0.25%),

Total: 64.24%

Commercial banks, credit co-operatives,

enterprise associations: 35.76%

Banks are in double role: owners + beneficiaries

of the guarantees

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Legal background

• Act CXII. of 1996 on the financial institutions

• Annual act on the central budget

• National and EU competition / state-aid legislation Garantiqa is not subject to company tax and does not pay dividend to its owners.

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Track record

•Market share: 13% of the approx.

HUF 4000 billion SME loan portfolio as of end 2010• 2010 results:HUF cca 300 billion (EUR 1.06 billion) new guarantees (y/y decrease 20%) HUF 506 billion (≈EUR 1.82 billion) guarantee portfolio (38956 contracts) • Guarantees between 1992-2010:

209.000 financing deals HUF 2400 billion (≈ EUR 8.6 billion) SME-loans and bank guarantees HUF 1900 billion (≈ EUR 6.9 billion) guarantees

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Evolution of commitments

Surety guarantees in 2000-2010

-50

50

150

250

350

450

2000 2001 20022003 2004 2005 2006 20072008 2009 2010

Gu

ara

nte

e,

bill

ion

HU

F

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

Nu

mb

er

of

co

ntr

ac

ts

Guarantees at start Number of new contracts

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Market position

founded in

owners products equity

(in million HUF approx.)

total commitments

(in billion HUF approx.)

approx. market share (%)

Garantiqa Hitelgarancia Zrt. 1992 State + 23 banks + 47 co-operative FIs,

+ SME-associations

•first demand guarantees to SME loans, factoring, asset leasing •guarantees to bank loans and bonds of municipalities•EU tender guarantees to SMEs

24 000 506 89

AVHGA 1991 State + 5 banks

first demand guarantees to loans, factoring, asset leasing deals of SMEs in agriculture

21 500 58 10

START Equity Guarantee Co. Ltd.

2006 MVA (Hungarian Foundation for Enterprise Promotion) + MFB Invest

•tender guarantees•equity guarantees

50 4 0.6

MV Zrt. (Venture Finance Hungary Co. Ltd.)

2007 MFB (Hungarian Development Bank)

•manager of the JEREMIE holding fund •direct portfolio guarantees•counter-guarantee

1 000 2 0.3

UNIO Guarantee Co-operative

2007 State + SME-associations

+ SMEs

•mostly tender guarantees•credit guarantees

260 n.a. 0.1

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SME guarantee products

Gradually extended offer:• 1999 – bilateral agreements with banks (‘packages’)• 2002 – Széchenyi Card• 2005 – other card type loan guarantees• 2006 – guarantees to financial asset leasing and factoring • 2007 – tender guarantees• 2008 – Garantiqa Pont Consulting Ltd.,

Jeremie- micro credit guarantees,

portfolio guarantee product• 2009 – new products to mitigate the effects of the crisis and

to enhance banks’ willingness to lend to SMEs

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Garantiqa Hitelgarancia Zrt.

Two ways of undertaking surety guarantees

I. standard process, individual assessment

receipt of application

• assessment of client and transaction risks

• decision

– Deputy CEO / Risk Management (<HUF 100M)

– Guarantee Committee

• deadline for the evaluation and

decision making: 15 working days

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II. Simplified process (‘packages’)

• surety guarantees undertaken on basis of

bilateral agreements with banks

• to a big number of smaller amount,

standardized loans

• preliminary analysis of risk management and

lending practices of the financial institution

• exact definition of the product terms and

conditions

• decision making within three days

Garantiqa Hitelgarancia Zrt.

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Counter-guarantee from the central budget

• Annual law on the central budget defines the rate, cap amount and maximum of year-end guarantee commitments (2011: 70%, HUF 20.9 billion, HUF 500 billion). Netting is not possible.

• Ministry of Finance decree 48/2002. (28 December) on the detailed rules of the state counter-guarantee

• Agreement of Garantiqa Hitelgarancia Zrt. with the Hungarian State Treasury (documentation, payment deadlines, etc.)

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State aid limits

• De minimis: gross grant equivalent max.

EUR 200 thousand in three years; max. guarantee

amount EUR 2.5 million (Commission’s Garantiqa

transparency resolution on 12 November 2008)• General block exemption: max. HUF 2.5 billion/guarantee to

investment finance• Guarantees at own risk: max. HUF 2.5 billion / debtor• Within the Temporary Framework (till 31 December 2010)

– supporting enterprises in difficult position– gross grant equivalent max. EUR 500 thousand

(vs. de minimis limit)–max. 90% guarantee rate

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The effect of the crisis on the guarantee institution• deteriorating average portfolio quality• growing number and rate of redemptions

higher provisions + smaller yield

negative effect on P&L

Main objective: stimulation of bank finance

Expectation of owners: • to increase the portfolio• long term sustainability after temporary losses

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How do we support SMEs during the crisis?• Updating of the bilateral agreements

– guaranteeing overdraft– guarantees to restructured financing – guarantees to Hungarian Development

Bank-refinanced loans• Exploitation of EU possibilities (JEREMIE, CIP,

notifications under new legislation, influence on the

enterprise policy and on the competition rules, etc.),

lobbying through AECM and national authorities

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Further possibilities

Capital constraints:Capital adequacy is sound (> 20%) but: smaller yields to be compensatedexcessive leverage ratio to be avoideddrastic fee increase to be avoided (strong market and CRD

constraints)

Suggested measures: • strengthening the counter-guarantee background (JEREMIE funds, EIF / CIP) • subordinated debt: IFIs

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Contact:

Address: 1082 Budapest, Kisfaludy u. 32.

Phone: (36-1) - 485-8300

Telefax: (36-1) - 485-8320

E-mail: info@garantiqa.hu

Website: www.garantiqa.hu