KfW knowledge transfer 'crucial' to financing of peripheral SMEs
Not everyone was blown away by the targeted LTRO and ABS measures announced by Mario Draghi to stimulate lending to Europe’s real economy.
“These measures remind me of the blueprint we designed 10 years ago in Germany to get finance to SMEs,” mused Günther Bräunig, member of the executive committee at KfW, at the ICMA AGM in Berlin on the same day. That is not to say he isn’t a fan: “We did more than €120 billion of synthetic securitization structures under that programme, all of which have been paid back.”
While the ECB is clearly throwing its weight behind SME securitization, Bräunig was, however, more circumspect. “If SME securitization is going to work, it needs to come in size and it needs to provide capital relief for banks,” he said. “It will only be part of the solution in the periphery.”
What KfW is certain will also be part of that solution is its intervention to boost SME lending in periphery countries, including Spain and Greece.
In July last year, the state-owned lender signed a €800 million loan agreement with Spanish development bank ICO to boost lending to Spanish SMEs. In May, it signed the first of three planned sub-funds under which the state of Greece and KfW will each provide €100 million to a new umbrella fund, the Institution for Growth in Greece.
The fund will refinance existing loans and issue new credit to Greek SMEs via Greek banks. Greek finance minister Yannis Sournaras has described KfW’s involvement as “a catalyst to attract capital from private investors, too”.
Under the structure, the Greek state takes the first-loss risk in the fund, with KfW taking the second-loss position. The hope is that private capital can subsequently be attracted at the senior level. It is understood that France's Caisse des Depots et Consignations (CDC) may be considering participation in the scheme.
|Michael Meister, parliamentary
state secretary for finance
Speaking to Euromoney after delivering a keynote speech at the ICMA meeting, Michael Meister, parliamentary state secretary at Germany’s federal ministry of finance, threw his weight behind the KfW initiatives. “There is a lot of liquidity in the market and it doesn't reach the real economy in some places,” he said. “All economies in the eurozone have to be competitive and we need structural reforms. For each country, what could be done to strengthen competitiveness? This is where politics can get involved.”
Meister argues that Germany’s post-war experience shows the way for struggling peripheral economies today.
“In Germany, we had to rebuild after World War II, and KfW was the way to do it," he said. "These were the instruments to solve the problems. We need to install the mechanism which KfW has established in Germany in Greece. We need to transfer know-how.”
On May 22 the Irish government announced the establishment of the Strategic Banking Corporation of Ireland which will provide €500 million in new credit for Irish SMEs. The scheme will be initially financed by KfW and the European Investment Bank (EIB) together with the directed portfolio of the Ireland Strategic Investment Fund (ISIF)