They underline the role of public investment and promotion in strengthening private investment during the current economic upturn in a congress held today in Barcelona. The general secretary of Economy and Knowledge of the Generalitat, Albert Carreras, acknowledges the work of the ICF during its 30 years in providing funding for SMEs.
European public investment and promotion banks have shown their capacity to respond swiftly to the drastic reduction in access to finance that occurred during the crisis, thanks to the offering of financial instruments placed at the disposal of companies and institutions, such as working capital loans, guarantees for SMEs and global loans for associated banks, amongst others. This is one of the main conclusions to be drawn from the congress jointly organised by the European Association of Public Banks and the Institut Català de Finances (ICF) held today in the modernist building of Sant Pau in Barcelona.
National and regional public investment and promotion banks are public policy instruments whose main objective is to support the economic, social and political aims of their relevant authorities. In this respect, they can play a very important role in mobilising private funding and optimising public investment, as they are strongly rooted in their regions, are familiarised with the local economy, the territory, the municipalities and the needs of small and medium size enterprises.
According to the EAPB, the crisis has revealed that those countries and regions without public investment and development banks have been incapable, without third party assistance, to create a sufficient financial development structure to tackle events. In this respect, the Association highlights the need for this type of financial development institutions on a permanent basis and their importance for boosting private investment during this current economic upturn.
The congress held today in Barcelonahas revealed that over recent years a large number of this type of entity has been created in countries which lacked them to date. This is the case, for example, of the United Kingdomwith the British Business Bank, Strategic Banking Corporation of Ireland (SBCI) in Ireland, or the Banque Publique d’Investissement (BPI) and the Société de financement local et des exportations(SFIL) inFrance.Greece,Malta,Romania and several regions ofItaly are also planning to set up new public banks.
Carreras and Restoy inaugurate the congress
The general secretary of Economy and Knowledge of the Generalitat, Albert Carreras, and the deputy governor of the Bank of Spain, Fernando Restoy opened the congress following the welcome speech of the CEO of the ICF,Josep Ramon Sanromà. Carreras underlined that “after the crisis of recent years, we can put the system to work” to offer more financing products via the ICF, “with the aim of increasing demand and changing the corporate scenario”. Carreras added that the action taken by European regulators has increased the liquidity in the hands of the markets, “but with stricter than ever regulations” to avoid the re-emergence of bubbles”. The secretary general also reviewed the activity of the ICF which is 30 years old this year and stressed the efforts made “to compensate the financing problems of recent years and carry out an anticyclic effort” during the recent crisis.
Fernando Restoy focussed his speech on reviewing the demand for credit since the outburst of the crisis in 2007, which fell by 80% among Spanish families, 20% more than the European average. The contraction in the case of SMEs was even stronger, making them the business segment which has most suffered from a lack of financing. Restoy referred to the importance of public investment banks, “taking into account that since 2013 SMEs have improved their access to credit”. Despite this, the deputy governor insisted on the need to sustain the pace of reforms to consolidate the progress made and “reduce the volatility of the economic and financial cycles”. In order to accomplish this, he emphasised that the Bank of Spain “is working on a circular to enhance the credit allocation systems for viable SMEs”.
The role of public banking, the EIB and its participation in the Juncker plan
This morning the participants also assessed the European Commission’s acknowledgement of the role of public banks in promoting the mobilisation of private financing. The EC underscored above all the roots of these entities in their regions, their knowledge of the local economy, the territory, its municipalities and SMEs. The participation of National/Regional Promotional Banks (NPBs) in the Juncker Plan (Investment Plan forEurope) is a good example. On 25 June, the European Parliament approved the constitution of the European Fund for Strategic Investments (EFSI), which forms part of the plan to mobilise over 315,000 million euros in public and private projects with the aim of strengthening long-term competitiveness via projects that would struggle to find direct private financing.
The congress was also a reminder that the European Investment Bank (EIB) will become the central pillar of the Juncker Plan to be implemented over the coming months. Thus, the EIB brings added value and guarantees to projects that could not be covered without the EFSI. Without wanting to intervene or direct the economic situation, public investment/promotional banks are public policy instruments which support the economic objectives of the governments. The aim is to mitigate as far as possible the limitations on the private financial market in products such as working capital loans, loan guarantees for SMEs, global loans for associated banks, capital instruments and counter-guarantees. All these financial instruments serve to drive different types of projects:
- Investment in developing transport or energy infrastructures.
- Expansion of renewable energies and energy efficiency.
- Development of ITC technologies, digital infrastructures, telecommunications, broadband networks, investment in innovation, research and development, investment in education, training and entrepreneurial skills, investment in cultural and creative industries.
- Investment in projects and infrastructures in environmental protection.
- Financial support, including the provision of working capital financing for SMEs, start-ups, spin-offs and small and/or medium capitalised companies.
- Other areas with market failures or considerable gaps.
Cooperation with private banks to achieve a multiplying effect
Public investment/development banks finance themselves chiefly via the capital markets although in many cases they can receive European or national public funds for development programs. Their chief goal is to help to stabilise the sustainable development of the economy and society, while at the same time increasing the potential growth capacity of the economies in which they participate. In particular, this type of entity plays a very active role in financing certain areas on which regional, national or European development policies are focussed.
Unlike private banking, public banks do not operate under for profit principles for optimising profit and can therefore make longer term investments. This enables them to carry out essential investment projects. In addition, they involve players from the private financial sector –based on co-investment, brokerage or the creation of financial consortiums to participate in syndicated operations– which enhance the efficiency of public spending while achieving a multiplying effect. As regards their array of products, public and development banks offer a set of instruments that range from loans for investment and working capital, guarantees for small and medium size enterprises, global loans for associated banks, capital instruments and counter-guarantees, amongst others.
European regulations and the legal framework
Another matter raised during this conference is the legal framework which governs this type of entity. According to the EAPB, its entities must be mainly guided by the requisites and national supervisory bodies and by European law to the extent determined by the national authorise, depending on the specific characteristics of each of the institutions. However, the Association has warned that it is possible that any European regulation that attempts to seek out a generic, standardized solution for all the entities may compromise the capacity of these institutions to meet their specific development objectives.
The Association insists that although public development banks comply with market standards, they must also operate in accordance with public principles.
EAPB
The European Association of Public Banks (EAPB), founded in 2000 and based on Brussels (Belgium), groups together and represents nearly one hundred banks, financial entities and associations of pubic banks from 17 countries in Europe: Austria, Bosnia and Herzegovina, Bulgaria, Croatia, Denmark, Finland, France, Germany, Hungary, Italy, Holland, Norway, Poland, Slovenia, Spain, Sweden and Macedonia.
These banks and public financial entities possess global assets of over 3.5 billion euros, 190,000 employees and have a market share of close to 15% on a European scale.
The EAPB is one of the four major associations in the banking sector at a European level together with the European Banking Federation (EBF), the European Association of Cooperative Banks (EACB) and the European Savings Banks Group (ESBG).
ICF
The Institut Català de Finances (ICF) is a public financial entity, founded in 1985 by the Generalitat of Catalonia. Its mission is to boost and facilitate the access to financial by the business community of Catalonia, so as to contribute to the growth of the Catalan economy, acting as a supplement to the private financial sector. It offers companies different products and services associated with corporate financing, focussing on loan activity and venture capital.