Year of grace for SME bank loans

Publish date: 26-08-2009
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Small and medium-sized enterprises (SME) could benefit from a grace period of up to 12 months to pay bank loan installments, according to a proposal by the Social Democratic Party (PSD).

This proposal is based on an Italian model, PSD's President, Mircea Geoana, said. Practically speaking, small enterprises will continue to pay only the interest on their loans, with the principal being suspended. "We recommend that the payment of principal be suspended for 12 months for medium and long-term loans, with only interest to be paid during this time. This initiative is based on an Italian model. It is an initiative that the Italian banking sector adopted a few days ago," Geoana said on Tuesday, after meeting with the representatives of the Romanian Banking Association (ARB), the National Bank of Romania (BNR), and businesspeople.

Moreover, PSD's President is also recommending the suspension of leasing loans for 6-12 months, and the extension of the payment deadline on overdue debts to 180 days from 90, contained in the Insolvency Law. Geoana also referred to a series of conditions that a company must meet in order to be able to request a loan extension. These measures could target companies with fewer than 250 employees, net sales below €50 million, and assets worth less than €25 mln.

Most bankers view this proposal with skepticism, especially since this measure already exists and is being applied by lenders. This is why the state should come up with an additional measure, bankers said, which could take the form of a guarantee. The state could provide additional guarantees for SMEs who are facing difficulties repaying their loans. If the state does not come up with anything besides the current practice in the banking system, this proposal will not have any conclusion, other bankers said. One must also consider the fact that the level of nonperforming loans is rising, and that such a decision could directly affect the volume of nonperforming loans.

In turn, Radu Ghetea, President of the Romanian Banking Association, said that there are many SMEs in Romania that could benefit from such a measure. "Of course we will have to work on adapting these measures to the Romanian market. We will have a quick debate with the members of the Board of Directors of the Romanian Banking Association, as early as this week," Ghetea added. There is also another factor to consider: when a small enterprise wants to extend a loan, the bank looks at the firm's financial situation, especially whether or not the company has sufficient orders to continue its activity. But the number of orders depends on the economic environment, which is presently unfavorable. Still, according to Ghetea, lenders are interested in such a program, because enforcement is not a solution in this period, as there are no markets and prices that can be considered a benchmark. Geoana announced a new meeting during which these measures will be discussed next week.

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