May the 19th, 2021 - Of the massive sum of 5.5 billion kuna in so-called Croatian covid guarantees, only a mere 20 percent has been approved as yet. Many people, from business owners to the banks themselves, has opinions as to why that is.

As Poslovni Dnevnik/Jadranka Dozan writes, Prime Minister Andrej Plenkovic has recently underlined the key role of the state during the ongoing coronavirus crisis, recalling the fact that the Croatian Government has so far paid out 10.5 billion kuna through job preservation measures and that the ORM measures have covered a total of 687,000 employees and 120,000 employers.

However, unlike the aforementioned direct fiscal aid, which has been being extended and expanded as time has gone on, national guarantee programmes for the economy have failed miserably from their initially planned levels. Most of these programmes were adopted last year, and so far, less than a fifth of the planned amounts of Croatian covid guarantees have been approved.

Croatian covid guarantees in the amount of more than 1.53 percent of GDP are planned through budget-funded and approved by the European Commission's Covid-guarantees covering 80 to 100 percent of the loan principal. That's equal to more than 5.5 billion. According to the data presented in the Government Convergence Programme 2022-2024, so far, an amount equal to just 0.26 percent of GDP has been approved, which is equal to less than a billion kuna.

Various participants have their own thoughts and opinions about the reasons for such low utilisation, from HBOR and HAMAG-BICRO, which are in charge of approving these Croatian covid guarantees, to the banks and even to the business owners themselves. Some believe that the problem is the lack of interest of commercial banks as the first address to which enterprises typically turn.

Others (even the banks themselves) point out overcomplicated rules and the typically Croatian problem of there being far too much administration. Small enterprises also see a problem in the lack of information.

The HAMAG-BICRO agency admits that the figures are "less than expected" given the level of coverage of state guarantees. They also point out that they "promptly processed all requests they received from banks", and that the figure in that sense stands at about 154 million kuna.

It should be noted that some large banks, unlike, for example, ESIF guarantee programmes, haven't even entered into agreements with the Agency for individual national guarantee programmes.

HBOR, on the other hand, says that in addition to loan insurance and guarantee programs implemented under the coronavirus measures, almost 1.4 billion kuna in loans have been approved so far. The largest part refers to loans secured by the Export Liquidity Loan Portfolio Insurance Programme, which is implemented in cooperation with 14 banks.

"Under this programme, banks independently make the decision to include approved loans in the secured portfolio according to pre-agreed conditions, ie without the need for additional approval by HBOR for each individual loan," they explain.

They also state that all programmes within the scope of coronavirus measures remain active. Depending on the terms and conditions of a particular programme, they allow coverage of up to 80, 90 or 100 percent of the loan principal amount, and in some cases they even pay regular interest. The implementation of these programmes is currently scheduled for the end of June, and is expected to be extended until the end of the year, in line with the duration of the EC's Temporary Framework.

In addition, back in November 2020, HBOR introduced the Insurance Premium Subsidy programme, which enables liquidity loan users secured through a portfolio or individual insurance programme to subsidise the cost of their insurance premiums by up to one hundred percent.

Enterprises affected by the pandemic have so far, however, made it known that they are primarily interested in grants. For example, according to a survey by the Croatian Employers' Association (HUP) from back in February, as many as 94 percent of 1,700 respondents suggested this, while only 6 percent expressed some level of interest in financial instruments, ie guarantees and loans.

“One of the reasons for that certainly lies in excessive regulation, administration and bureaucracy in achieving the proper conditions for financial instruments. It's currently one of the most complicated in the entire EU. This was confirmed to us in talks with the banks themselves, which are trying to influence the relaxation of these conditions,'' they claim from HUP.

The low utilisation of state guarantee programmes, according to them, can be explained by the "fiscal exhaustion of the economy.''

The lower interest of enterprise owners stems, in addition, from the fact that loans, at least for larger companies, are already available at low interest rates from commercial banks. In the Voice of Entrepreneurs Association (UGP), which is primarily the “voice” of those micro and small companies, warranty programmes are generally considered “good things”, especially given the degree of coverage, yet they still see several reasons for their poor utilisation.

One of them is the problem of education or insufficient information. However, UGP also says that banks often don't treat these guarantees as first-class, so in the end the loan amounts are reduced, as they claim, "by more than half". In addition, they say that banks continue to approach loan processing very conservatively.

"If they believe that an individual company has no prospects according to their projections, it's unlikely that the loan will be approved even with a guarantee," they said, emphasising primarily coronavirus-crisis-affected companies that have current liquidity problems.

Finally, in addition to the Croatian covid guarantees provided by the state, there are currently many other guarantee programmes, including those coming from European institutions such as the EIB, which are directly obtained by commercial banks. The association also notes that "banks put more emphasis on other types of insurance, such as insurance for land, halls and machinery."

Regarding other guarantees, HAMAG also points out that enterprises still have ESIF guarantee programmes to use if they want to (individual and portfolio, for investments and working capital and for rural development).

These financial instruments, based on the signed agreements (with the Agency's guarantee for a part of the principal and agreed interest), facilitate access to financing for micro, small and medium-sized enterprises and encourage credit activity, they claim. 

HUP says that despite the biggest crisis in 25 years, enterprises are ready to create and invest in new projects (according to the survey, up to 21 billion kuna in five years) if they are given the investment momentum through grants.

Therefore, over the past few months, they've persistently called for more grants to be available to the private sector through the National Recovery and Resilience Plan, the main purpose of which is to ensure recovery from the ongoing public health and economic crisis and resilience to the future in the short term, they say.

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