Open Data Albania is investigating into a new category of contingent liabilities of the Albanian state, such as 2 packages of Sovereign Guarantee for Lending to Businesses Affected by the Consequences of the Covid 19 Pandemic. Through the approval of several legal acts in 2020, the Government has approved a state guarantee line amounting to a total of 26 billion Albanian Lekë or approximately 211 million Euros, detailed in the Sovereign Guarantee package 1 and Package 2.
The First Package Provides for State-Guaranteed Lending to Businesses in Difficulties with paying their employee wages. This sovereign guarantee was made possible by Decision of the Council of Ministers (DCM) no. 277/2020, amended by DCM 370. The approved value is 11 billion Albanian Lekë. So far, this package has been disbursed (activated) to the extent of about 48%, equal to 5.33 billion. For the First Sovereign Guarantee Package, the State through the Ministry of Finance guarantees 100% of the loan principal in case such loans are not paid back by the business companies themselves. The state also commits to repay the interest on the loans to be dealt with through a Guarantee Agreement. If we are in a situation where X borrower has not repaid its loan as per the terms of the loan agreement, then, upon expiry of the 120-days term of loan payment, the Lending Bank shall have the right to address the MFE, asking for the loan to be paid by the state budget. Upon receipt of such request and its verification in accordance with the terms of the Loan Agreement, the MFE authorizes the transfer of payment within 15 working days of receipt of the request. So, through this illustration, it is explained that the guaranteed amount of 5.33 billion ALL represents potential liabilities for the Albanian state. In addition to this amount, potential additional costs for the state budget may also result from interest on loans and penalties for late interests. However, this is not calculated as actual debt or real costs for purposes of Public Finances until such potential liabilities materialize.
The second package guarantees loans in an amount of up to 15 billion ALL for Business Companies that need working capital and investments. The application deadline for such loans with sovereign guarantees was extended until the end of June 2021. Until July 2021 such loans were disbursed in the amount of 8.33 billion lek, which represents 56% of the planned amount. Unlike the first guarantee, under the Sovereign Guarantee Agreement II, the MFE guarantees 60% of Loan principal, while not guaranteeing interests, arrears, penalties or any other monetary liability that may arise from the Loans that the Bank will provide to Business Companies. The loan term should not exceed 5 years.
The Guarantee Agreement does not constitute a direct obligation, but a potential obligation for the state. In case business companies fail to pay back their loans according to the terms and conditions, it is the state that is responsible to the Lending Banks and pay the outstanding liabilities.
If we consider only the costs identified by potential liabilities, a total of 26 billion ALL for the first and second guarantee, then we can say that if such costs materialize, this would be equal to 93% of the state budget expenditures allocated to the Reconstruction Fund for this year, or as much as 21% of capital expenditures according to the original plan for 2021.
These potential state guarantee liabilities are not actual debt costs. However, if we were to look at what weight they occupy on the total debt that our state has accumulated, we see that these two guarantees make up 30% of the guaranteed state debt or 2.1% of the public debt. Also, if we see the potential liabilities deriving from sovereign guarantees in terms of the Gross Domestic Product, they would represent 1.7% of the GDP for 2021.
The Ministry of Finance has not published the names of the business companies benefiting from the Sovereign Guarantee. The only detail that is revealed is the value according to the second-tier bank to which the guarantee of the loan amount has been approved. Specifically, Raiffeisen Bank has the highest value of loans granted with state guarantees in favor of businesses. For lending through this Bank, 22.3% of the guaranteed funds have been approved, or ALL 5.8 billion to be disbursed as loans guaranteed by the state, respectively ALL 1.9 billion from Guarantee I and ALL 3.9 billion from Guarantee II. The second bank in terms of the guaranteed amount is Credins Bank, which constitutes 13.5% of the total guaranteed amount, or ALL 3.5 billion in total from the two guarantees. Then comes OTP Albania Bank with 12.7% of the total guaranteed loans, and BKT with 10% of the total. While the rest of the banks, i.e. eight of them, constitute the rest of the guaranteed amount for lending to businesses, representing 10% of the total.
According to the MFE Report on Budget Implementation 2020, it is found that the sector that has received more support from this instrument is Commerce , so businesses in this sector have benefited 38% of the amount disbursed from both guarantees. It is followed by the Production sector with 24% of the disbursed amount, the Service sector with 18%, the Construction sector with 12%, and the sector that has requested less support is the health sector with 3% of the total disbursed amount and this only from the first guarantee.
For more detailed information on analysis and calculations, access the excel material that comes with this article.
Also, in order to follow up the state payments in favor of commercial banks, which have already started to be executed, especially from the first guarantee (GS I), as interest payments, access Open Data Albania, the Treasury Section. By the end of 2020, the Albanian state has paid about ALL 37.5 million as interest deriving from GS I, expenditures categorized as Debt Services.Shkarko excel: Disbursement and Value of Sovereign Guarantees for Business Support dealing with the Consequences of Covid 19 Consequences
Comment and Analysis: Open Data Albania
Translated by: Etleva Kondakçi