Banks Review Ico Loans To Determine Which Companies Are Not Viable

2021-02-10   |   by CusiGO

Entities, Spanish banks, the Ministry of finance, employers and consulting firm Oliver Wyman analyzed loans under ICO guarantees to find a standard framework for each type of company, specifying which companies should receive direct assistance and which companies will be withdrawn. In principle, the assistance is only for companies with ICO loans, including extending the maturity, recovering loans (outstanding amount), injecting new funds or converting part of the guaranteed debt into equity loans. Since the Bank of Spain does not have a key report, some sources estimate the aid to be about 20 billion euros.

Meetings between the financial sector, AEB and ECSC employers, the economy (represented by the Treasury), regulators and Oliver Wyman continued, despite significant differences in standards. The consulting treasurer agreed that the Ministry of economic affairs would like to have objective criteria to optimize and moderate assistance.

It will also try to prepare the plan by the end of February so that it can be submitted to the EU competition agency. The key to this work is the work of Oliver Wyman, who was given access to the central risk information centre (cirbe) of the Bank of Spain. No specific company names are seen, but their financial status data depends on the size and type of activity. According to the consultancy, Oliver Wyman’s work is interesting because it relies on a debugged mathematical model.

Because the bank believes that minister Nadia Calvi ó o has rejected Germany’s “hose” model, which allocates funds on a broad basis, because she believes that this is not feasible given Spain’s high level of public debt.

The financial sector pointed out that the government’s goal is “to conduct an objective analysis to determine which companies are feasible, and to optimize the assistance according to the situation of each company.”. He expects the Bank of Spain to issue a report on the economic position of the problem, according to people familiar with the matter.

So far, it’s not easy to put the figures on the amount of aid, because the calculation has not yet been completed. As of January 31, 2021, loans with liquidity and investment guarantees of US $118.354 billion were funded, with guarantees of US $89.924 billion, accounting for 76% of the total. 977574 businesses have been closed, of which more than 98% are subscribed by SMEs and self-employed persons.

AFI estimates that the proportion of companies facing financial pressure will rise from 13% in 2019 to 40% (30% for big companies), according to “the Bank of Espa NIA’s own sample of central balance sheets”. “The bankruptcy rate could be close to 20 per cent,” they added

According to data from several major advisory bodies, these estimates will result in direct aid of nearly $20 billion, as the data have not been further clarified. On Tuesday, the hotel industry alone received $8.5 billion in aid.

In the financial sector, in the aid model, subsidies conditional on partial credit repayment are considered to be a good quick formula. Direct withdrawals (it is not clear whether ICO will only assume the percentage of guarantees) or the conversion of debt into equity loans, which are repayable at variable interest rates based on the borrower’s profits.

No one is aware of the enormity of the task because many companies are small or self-employed. This prevents the application of standard solvency ratings. In their absence, it analyzes whether the company’s debt is correctly calculated on the basis of earnings before interest, tax, depreciation and amortisation (income minus expenses, excluding financial expenses such as interest, depreciation, tax and amortisation) or sales debt.

Therefore, it is necessary to determine which companies are in a hurry to recover and which need direct assistance to return to profitability and repay their debts. It also has to decide how much debt they can afford and how much aid they should receive. The scale chosen here is one of the keys to the final invoice.

All respondents agreed that businesses must be prevented from getting better than in March 2020. “They will not use public funds to improve their situation, but to compensate for the damage caused by their irresponsible crisis,” said one executive

AFI analysts say there is no time to waste. They added: “accelerating the bankruptcy mechanism is the key to preventing corporate bankruptcy.”. They warned that the business crisis “could be more severe than the financial crisis of 2008” because it was not so severely constrained at the sectoral level.

Banks and regulators (the Bank of Spain) believe that generosity is better than insufficient direct aid. They point out that the extension of the crisis has led to defaults by some ICO credit debtors and will continue to grow in the hotel, hotel and transportation sectors.

They acknowledge that public money cannot help those who have no future, inter Alia, because structural reforms in society, such as telecommuting, can be carried out. But they believe that if companies that can recover when they return to normal are destroyed and employees lose their jobs, the state will pay unemployment benefits, reduce taxes, and have indirect consequences for the destruction of the organization. In addition, if overdue payments increase, the state will guarantee $90 billion of the already issued ICO loans by January 31. This amount is likely to increase as the deadline for applying for ICO loans is open.

But it’s an interesting reasoning. If this crisis comes, banks’ non-performing loans will surge, hitting the weakest banks. While the industry is stronger now than it was in 2008, there are also people who may have problems. Therefore, direct aid can avoid what Pablo Hern á ndez de cos, the governor of the Spanish Central Bank, said: the goal is to prevent the medical crisis, which has become an economic crisis, from turning into a financial crisis. “Even from a political point of view, rescuing SMEs and self-employed people is better than rescuing banks,” admits one industry executive.