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14 July 2020
COVID score calculation
New liquidity loans in cooperation with commercial banks
HBOR insurance policies (guarantees) as loan collateral
Use of HAMAG-BICRO loans for MSMEs
During and following the peak of the COVID-19 crisis in Croatia, the government launched three packages of measures to aid the economy affected by the lockdown. Measures in the banking sector included initiatives and interventions by the Croatian National Bank, recommendations for commercial banks and different types of specialised loan in collaboration with relevant state agencies and development banks, backed by guarantee schemes and other risk coverage options (for further details please see "Banking measures introduced to tackle COVID-19 crisis").
Since a large number of businesses remain far from recovery and their liquidity in the upcoming period is questionable, new types of financing option and support from the Croatian Bank for Reconstruction and Development (HBOR) are being introduced. To aid the process of applying for government measures, the Croatian Financial Services Supervisory Agency (FINA) has introduced a scoring system to assess the degree of affectedness of a particular business entity, the so-called 'COVID score'. This universal score helps determine a company's need for additional financing and is used for processing applications for different types of state support, measures for job retention, tax measures and liquidity loans with commercial and state-owned banks.
When the first measures were implemented in April 2020, FINA was, among others, tasked with calculating the COVID score as a universal criterium for the easier processing of applications. A new methodology was introduced in June 2020 to upgrade the previous system and align it with the current circumstances and state of the market.
The system evaluates nine different risk elements which may affect a company's liquidity, some of which may be decisive:
According to the total score, applicants are sorted into six categories, scaling from 'negative', meaning that the subject does not meet the criteria for support, to 'vital', signifying that the subject has liquidity issues and its future business activities are threatened by the COVID-19 crisis. The individual COVID score is forwarded to the relevant credit institutions or other bodies for further processing and assessment.
Besides moratoriums on existing loans and loan reprogramming for its direct borrowers, the HBOR offers other support measures for Croatian businesses affected by the COVID-19 crisis.
At the end of May 2020, the HBOR enabled the approval of new liquidity loans in the total amount of HRK1.2 billion (approximately €158 million) through framework loans to commercial banks and directly to small and medium-sized enterprises (SMEs) in the tourism sector. The loans are available with a reduced interest rate, starting from 0% interest on the amount provided by the HBOR (50% of the total amount) and an interest rate of 0.75% lower than the regular rate on the remaining part. Included in the programme are 14 out of 19 commercial banks operating on the Croatian market, with all of the major banks participating.
The loans are intended for micro, small and medium-sized enterprises (MSMEs) and medium-capitalised enterprises with up to 3,000 employees which were not facing difficulties on 31 December 2019. Applicants filing for loans must have an appropriate COVID score demonstrating their affectedness by the crisis and the need for additional financing.
The maximum loan amount provided to a business is HRK35 million (approximately €4.6 million). The funds can be used for financing salaries, overhead costs and other basic operating costs, the procurement of raw materials and the settlement of liabilities to suppliers and similar operating expenses. The loans are not to be used for settling other outstanding debts to financial institutions.
This measure is available until the end of 2020 or the expiration of allocated funds.
The HBOR on the state's behalf approves portfolio insurance policies (guarantees) to commercial banks and the HBOR itself. The guarantees are to be used as collateral for new liquidity loans for exporters (businesses whose export accounts for at least 20% of their revenue), which includes exporters in the tourism sector as well as indirect exporters (ie, exporters' suppliers that generate at least 40% of their revenue through sales to exporters). The HBOR securities work as collateral for 50% of the total amount of the approved loan.
A special state-backed loan provided through the Croatian Agency for SMEs, Innovations and Investments (HAMAG-BICRO) reached its scheduled limit. Launched early in March 2020, over HRK165 million (approximately €21.8 million) in HAMAG-BICRO loans were used by over 500 entrepreneurs. Further, over 2,000 entrepreneurs activated the moratorium on their loans in the total amount of HRK62 million (approximately €8.2 million). Analysis shows that most applications came from the hospitality sector (eg, accommodation providers and the food and beverage industry) and the manufacturing industry. The so-called 'corona loans', which were introduced as a new financial instrument, were mostly granted to businesses in the trade sector.
The banking sector measures launched to mitigate the adverse effects of the COVID-19 pandemic on the economy were well received by the public and used by a large number of affected businesses. However, as the summer season moves forward and the global epidemiologic situation is far from stable, a country in which 20% of GDP depends on tourism can anticipate more uncertainty in Autumn 2020. It is therefore reasonable to expect more measures or upgrades to existing ones in the near future.
For further information on this topic please contact Ivana Manovelo at Maćešić & Partners by telephone (+385 51 215 010) or email (firstname.lastname@example.org). The Maćešić & Partners website can be accessed at www.macesic.hr.
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