BoG: State guarantee for loans

Bank of Greece Governor Yannis Stournaras is calling on the state to cover part of the credit risk to facilitate the financing of small and medium-sized enterprises so that the benefits of growth can be more evenly spread across the economy.

“It is important to develop credit products that will spread the risk between the state and the banks,” Stournaras tells Kathimerini. He argues that such products might be collateral or credit insurance, which would be funded through the European Union’s Multiannual Financial Framework, known in Greece as ESPA.

This is the direction, adds the central banker, the experience of the pandemic points to: Amid the lockdowns, loan issues to SMEs expanded because they were guaranteed by the state, through the Business Guarantee Fund of the Hellenic Development Bank, securing favorable terms for borrowers. The end of the support measures should not mean a full withdrawal of such support to SMEs, Stournaras argues.

“There are some very good and sustainable small enterprises that do not have access to borrowing now,” he notes, explaining that his proposal concerns only that category of business and not enterprises that are not sustainable, as the Greek state is not in a position to add more risky guarantees, which will likely lead to an increase in its debt.

The Stournaras proposal has already been delivered to government officials who are preparing for the day after the pandemic, using the Recovery and Resilience Fund as the main instrument. The challenge for the government is also political, as it will have to secure a fiscal adjustment amounting to 10% of gross domestic product within just one year, and that in a year that will be leading into a general election. This is because the primary budget deficit for 2021 is estimated at 7.7% of GDP and will have to be taken down to 0.9% in 2022 and turn into a primary surplus of 2%-2.5% in 2023.

Finance Ministry officials are optimistic that the economic rebound will give the solution, offsetting the fiscal tightening, but for that to happen it will take all of the growth’s benefits being spread to society, hence the central banker’s concern about the access of SMEs to funding.