GARANTAREA Aurel Şaramet: "The survival of many businesses depends on their ability to obtain financing"

• Interview with Aurel Şaramet, President and Managing Director of the FNGCIMM

Reporter: How do you see the economic situation of Romania, at the moment, given the fact that there are still signs of concern in Europe? What behavior should the small entrepreneurs adopt?

Aurel Şaramet: The European economic context creates permanent pressure on the economies of both developed countries and emerging economies, and Romania is not exempt from this phenomenon. And yet, everybody's eyes are focused on countries like Greece, Portugal and Italy, where it was found that the situation is extremely serious. Also, the last official forecasts, reinforced by those of the European Commission, indicated a growth rate of 1.6% for Romania in 2012. Although at first glance it seems modest, is the fourth largest economic growth in the EU. Given these aspects, in Romania, things seem to be going the right way and the economic situation is stable and predictable. It remains to be seen if this forecast will be confirmed by economic reality.

As to what concerns the SME sector, we dare to believe that the period ahead will be certainly better for those who will be ready to step outside their box, for those who will show boldness and imagination and, last but not least, with the belief that it is within everyone's power to make this sector more competitive. To "move" the economy in a positive direction, the SME sector should abandon its defeatist stance and take its fate in its own hands, as it did over these last 20 years.

Reporter: The FNGCIMM guarantees have increased substantially in the first quarter. What are your estimates for the end of the year, compared to the other years of crisis? To what extent have you faced a situation where guarantees were activated?

Aurel Şaramet: 2011 represented a peak of our activity, involving a total of about 10,000 guarantees, amounting to 2.2 billion lei, compared to 2010, when the number of guarantees issued was about 9,000, amounting to 2 billion lei. This data comes as proof that in years of crisis, the activity of the Fund had a positive effect on the business environment, as the guarantees granted to the business environment supported approximately 4.4 billion Euros in loans in 2011 alone.

The expertise gained in the previous years, as well as the positive trend of loans already achieved, allow us to look at this year with strength and confidence. In this respect, we forecast the issuance of more than 11,000 guarantees, which will involve surpassing the 3 billion lei volume of new guarantees and the backing of loans amounting to over 6 billion lei. Without becoming overly optimistic we believe that we will be able to contribute to the creation and preservation of about 120-130 thousand jobs, as long as the economic growth will retain its forecasted rate. At the same time, it should be noted that the permanent growth trend of the volume of guarantees granted in recent years has also involved an increase the risks taken, but this aspect has been managed properly. The main cause of the failures to repay the loans, especially in the SME sector, came from the contraction of the economic activity and the fact that this contraction persisted, the depletion of the entrepreneurs' own financial resources, as well as the manifestation of pessimism on the short terms outlook for business. The efforts we made to deal with the "troubled" guarantees resulted in achieving lower annual credit risk rates than the annual rates of non-performing loans across the entire banking system.

Reporter: What is your opinion on the crisis and the activity of your business partners (banks and SMEs) during the crisis. What were the difficulties which the FNGCIMM encountered in the years of crisis and what lessons did we learn?

Aurel Şaramet: It is difficult to say what the lessons learned from this crisis are. First of all, we do not know what stage of the crisis we are in, because every time, the national or the international context revealed new aspects of the crisis. One thing is for sure, from our perspective, namely that we are learning every day and drawing conclusions. What has characterized the banking environment in these years, as well as the business environment was, first and foremost, excessive prudence and lack of ambitious long-term objectives. The SMEs were afraid of looking ahead, focusing their efforts only on survival. Sure, we have encountered difficulties in these years, but it is precisely overcoming them that represented performance. Lack of trust among the members of the business sector, the uncertainties generated by the evolution of the economic crisis, the difficulty in estimating the impact of the crisis on companies were the main challenges we had to face and which we have learned to overcome, focusing first of all on anticipating the potential problems and second of all on dealing with the effects and reactions.

Reporter: The absorption of European funds represents the top priority for the government, but Romania's results so far are nothing to write home about. How is the FNGCIMM involved in the absorption of European funds?

Aurel Şaramet: Accessing European funds was, is and will continue to be a very important element, as they represent an engine for growth. They are not, however, a panacea. For this reason, we consider that there may be some delays and some economic agents who had difficulties in accessing European funds will fail to adapt. The Fund provides significant guarantees, of up to 80% of the loan, regardless of the purpose of the loan, for those looking for co-funding, as they are also involved in the payment of guarantees for the payment of the advance. The standardization of procedures with 6 or 7 banks, on the basis of indicators established by mutual agreement, allowed us to grant a guarantee of up to 2 million Euros by default, as long as the lenders consider the project viable. For such transactions we also charge lower fees, comparable to those we charge young entrepreneurs. Performance wise, the Fund has all the tools ready. Unfortunately, many bureaucratic elements have caused some projects to no longer comply with the initial parameters and to no longer be eligible for financing by banks. In other cases, even though the projects received funding, the repayment of the loan lasted longer than expected, and some projects even entered insolvency.

Even under these circumstances, the Fund got involved supporting the spending of European money, by granting over 1.5 billion lei in guarantees, to over 1,500 SMEs.

Reporter: The Government has adopted a series of austerity measures in 2010, whereas the measures for supporting the business environment were a lot more timid. What is your message for the business sector, from this point of view?

Aurel Şaramet: SMEs represent the main component of the middle class, providing economic and social stability to any country. From this perspective, entrepreneurs should be treated as an invaluable national resource, which should be encouraged and whose capacity should be used to a greater extent, in order to increase the performance of our economy. Through our mission, we have precisely that role of supporting this sector, knowing that good business ideas can only be implemented if there is funding available, and the granting of guarantees can help achieve this goal.

Reporter: What solutions does the FNGCIMM offer to small entrepreneurs?

Aurel Şaramet: The function of the guarantee funds was clearly evidenced by the difficult economic context which the country had to deal with in the recent years. Through the activities undertaken during this period, we have facilitated access to financing by providing guarantees for loans taken from banks or other sources and contributing to the support of more than 20,000 SMEs and providing guarantees for loans worth more than 4 billion Euros. In other words, through the guarantees which we granted, we have contributed to increasing the capacity of SMEs to "stay alive", and implicitly to a stimulation of the business environment, improving the dynamic of the development of business, but also in increasing the capacity to implement the results of research and new technologies.

The way of collaboration between us and the financing institutions, whether they are banks or non-banking financial institutions is regulated through conventions. The first step is the decision of a lender to grant a loan to an SME, which lacks sufficient guarantees to access funding. From that point on, the Fund steps in, which, within the limit of a maximum of 80% of the loan amount, will provide the necessary guarantee. Given the fact that the guarantee is certain, liquid and payable, as well as there to stay, it has all the benefits compared to other types of guarantees such as mortgages or pledges.

Reporter: Businesspeople complain about the reluctance of banks to grant loans anymore. How do you see the involvement of banks in the government's programs? How would you describe the relationship of the FNGCIMM with the banks?

Aurel Şaramet: The survival of many businesses depends on their ability to obtain financing. Blocking the ability of obtaining financing has proven disastrous for many companies, which made it impossible for them to find alternative solutions in order to avoid insolvency. In this context, it is all the more necessary for the banking system to be more open towards the SME sector, even though, looking at it from their point of view, lending has continued to operate, but was only aimed at those who had a low risk of default, i.e. the multinationals, large private companies, the profitable state owned companies, while the SME segment, although it was still being considered, posed the most problems related to loan defaults. The National Bank of Romania should implement more flexible rules, allowing banks to lend to SMEs, because newly created firms can not survive without financing.

We have always been concerned with the strengthening of the relationship between banks and SMEs. To this end, we have implemented a new guarantee mechanism, which would be beneficial to all the parties involved in the process. For lenders/SMEs we have created communication and cost facilities (online communication between the banks and the guarantee fund, a guarantee level of a maximum of 80%, irrespective of the duration and the destination of the loan, reduced fees, very short approval delays - 3 working days), as well as autonomy in the selection of the SMEs receiving the guarantees. From our perspective, this concept allows us to provide a lever of control over the implementation of our strategic elements, whether we are talking about the structure of the guarantees, the orientation towards the investments vs. working capital, and maybe more importantly, an improved management of the forecasted payments generated by the default of some SMEs. Our latest initiative follows the same goal. I am referring to our initiative to draft a study intended mostly for lenders, to identify changes or improvements which need to be made to the regulations of the banking system, for the common interest of stimulating ongoing growth of the business environment in Romania, by strengthening and increasing SME lending.

Reporter: How do you cooperate with other guarantee funds in Romania? How about those in other states?

Aurel Şaramet: Guarantee funds in Romania operate as a non-banking financial institutions in a competitive market, with different strategies, set according to the interests of its shareholders, be they the government state or private investors. There have been situations where complex transactions the syndication of loans, which led to our involvement, together with other funds in the creation of structures to benefit SMEs.

From the perspective of collaboration with funds from other countries, the membership in the AECM (European Association Of Guarantee And Mutual Funds) represents the best way to disseminate among members the expertise acquired on various markets, and of the ways of implementing the various programs to support SMEs. Another advantage which the FNGCM has in the relation with representative structure of European funds is the fact that I act an interface with the organization by serving as a member of the board of the AECM and director of the structural funds area.