Supporting the liquidity of households and businesses
At a time of economic contraction, such as the one Italy is currently experiencing, it is vital to make every effort to prevent the effects on the real economy being transferred to the credit sector. Both households and businesses risk seeing their income significantly reduced, affecting their ability to fulfil previous financial commitments and possibly also making it difficult for them to get access to credit. The Italian government intends to avert this possibility and has prepared a plan worth over 750 billion to ensure that households and businesses have enough liquidity. This plan has received the go-ahead from the European Union under the new rules on the Temporary Framework.
The government is taking action in several areas.
Moratorium on loans
Micro enterprises (holders of VAT numbers), small and medium-sized enterprises (SMEs), professionals and sole proprietors based in Italy, and not classified as having impaired exposure, may benefit from an extraordinary moratorium on a total volume of loans estimated at around € 220 billion. The aim is to help these categories of companies overcome the most critical phase of the fall in production linked to the Covid-19 emergency, preventing a significant drop in demand, albeit limited in time, from having permanent effects on a large number of companies. Until 30th September, lines of credit on current accounts, loans for advances on claims on money, short-term loans expiring and loan and rent instalments expiring shall be frozen. A fee-free, partial guarantee will be provided for these types of exposure, by the SME fund.
To access the moratorium, at the time the decree was published (17th March), companies must be performing, i.e. they must not have any debt positions classified as being impaired exposures. Companies are required to self-certify that they have suffered temporary liquidity shortages due to the spread of the epidemic, while banks and all other entities authorised to grant credit in Italy must accept the moratorium notifications, as long as said notifications comply with the requirements of the "Cure Italy" Decree Law. Companies may also send these notifications via certified e-mail.
- Measures to support the liquidity of enterprises
A measure worth € 200 billion has been implemented, aimed at ensuring that companies based in Italy have enough liquidity: until the end of 2020, SACE will grant guarantees in favour of banks and other financial institutions for any kind of new loans disbursed to companies. SACE will manage requests for risk coverage through an 'Italy Guarantee' counter-guaranteed by the State: any kind of company, regardless of its size, business sector or legal form, can request this tool up until the end of 2020. In order to be able to access the SACE guarantee, SMEs, which are destined to receive at least € 30 billion, must have exhausted their credit limit with the Guarantee Fund. This is a first-demand, explicit and irrevocable guarantee and covers loans for an amount not exceeding 25% of the company's turnover in 2019 or double the personnel costs in 2019, whichever is higher. The same company may also ask for more than one loan, but the total amount requested must nonetheless respect these limits. The duration of the loans cannot exceed 6 years, with the possibility for companies to take advantage of interest-only repayments for up to 24 months (12, 18 or 24 months).
Commissions must be limited to the recovery of costs and the cost of the guaranteed loan must be lower than what it would have been without the guarantee.
Companies must submit their loan applications to the banks of reference and the bank will then request the guarantee from SACE. Smaller companies, with fewer than 5,000 employees and a turnover of less than 1.5 billion, can benefit from an even more simplified procedure, following just a few steps:
- The company requests a SACE-guaranteed loan from the lender;
- The bank verifies whether the applicant meets the eligibility criteria before loading the request into the SACE online portal for evaluation and the issuing of a unique identification code for the loan;
- Once the State guarantee has been issued, the bank can disburse the loan to the applicant, with the SACE guarantee counter-guaranteed by the State.
- Measures to support exports, internationalisation and business investments
The decree also strengthens public support for exports, to improve the incisiveness and timeliness of state intervention. The measures have introduced a co-insurance system whereby 90% of the commitments deriving from SACE's insurance business are taken on by the state, with the remaining 10% being taken on by said company, freeing up an additional 200 billion in resources to be used to strengthen exports.
The aim is to allow SACE to meet the growing demand to insure transactions deemed to be of strategic interest for the Italian economy, which the company would otherwise not have had the financial capacity to finance.
Strengthening the SME Guarantee Fund
Italy's Decree Law no. 18/2020 and the subsequent Decree Law no. 23/2020 significantly extended the operations of the Central Guarantee Fund for SMEs, stating, inter alia, that the guarantee would be free of fees, with suspension of the obligation to pay the commissions necessary for access; that debt renegotiation transactions could also be covered by the guarantee and that the guarantee would be automatically extended in the case of moratorium or suspension of the loan due to the Coronavirus emergency. The maximum guaranteed amount has been increased to € 5 million and companies with up to 499 employees shall also be allowed to access the guarantee. The percentage of direct coverage has been increased to at least 90% for all loans of up to 6 years, with the possibility of reaching 100% if certain conditions are met. Beneficiaries may also be allowed to access the Fund who, as at the date of the guarantee request, have exposures which the bank classifies as 'probable defaults' or 'past due or with default status', as long as this classification was made after 31st January 2020. Companies that have exposures classified as 'non-performing loans' are excluded. The guarantee may also be granted to loan transactions already completed and disbursed no more than three months ago and, in any case, after 31st January 2020. By adding existing loans to new ones, the aim is to allow the Fund to issue guarantees for a total of over 100 billion in financing for businesses.
There are three main loan thresholds:
- Loans of up to € 25,000: new loans, equal to 25% of the company's revenues (as per the last financial statements filed or the last tax return submitted as at the date of the guarantee request or, for companies established after 1st January 2019, taken from other suitable documentation or even self-certifications), are 100% guaranteed by the Guarantee Fund for SMEs. The company submits a self-certification to its bank (or to another entity authorised to grant credit) regarding the damages suffered by its business due to the Covid-19 emergency. No type of evaluation is carried out by the Fund on the beneficiary of the guarantee, while the bank limits itself to assessing creditworthiness. These loans shall only require capital to be repaid after 24 months and shall have a duration of up to a maximum of 6 years. The interest rate applied by the bank shall only take into account the coverage of evaluation costs and the expenses to manage the transaction. The guarantee will be granted automatically and will be free of fees; this means that the bank can disburse the loan after formally checking that the applicant meets the requirements, even without having to wait for the result of the Fund’s appraisal. The Italian Banking Association (“ABI”) has published an example chart on its website for access to funding below this threshold.
- Loans of up to € 800,000: companies with revenues not exceeding € 3.2 million and with up to 499 employees can obtain a 100% guarantee, 90% of which is granted by the State and 10% by a third party (e.g. Confidi), on a loan for an amount not exceeding 25% of the company's revenues (maximum € 800,000). To request such a loan, the company must submit a self-certification to its bank regarding the damages suffered by its business due to the Covid-19 emergency. The intervention of the SME Guarantee Fund is free of charge and, for the purposes of issuing the guarantee, no assessment into the company's creditworthiness shall be carried out.
- Loans of over € 800,000: the Fund guarantees 90% of loans over € 800,000 (without prejudice to the maximum limit of € 5 million per company), with fee-free access. The loan amount cannot be more than double the expenses for salaries incurred by the beneficiary in 2019 or 25% of the total turnover in 2019. For the purposes of granting the guarantee, no assessment into the company's creditworthiness shall be carried out.
State guarantee in favour of the CDP to provide funding to banks that finance medium-large enterprises that do not benefit from the SME Fund. Guarantee of 500 million with a multiplier of 20; therefore up to 10 billion in new funding is estimated.
At the same time, Cassa Depositi e Prestiti has launched the most extensive mortgage renegotiation initiative of recent years, which will involve 7,200 local authorities and free up resources of up to € 1.4 billion in 2020 from the renegotiation of 34 billion loans. CDP offers financial support to Italian municipalities, large cities, provinces and regional authorities, which will therefore have resources that they can immediately use in their local areas. These resources may also be used for the measures necessary to deal with the Coronavirus emergency.
Incentive for banks and industrial companies to transfer their receivables due from defaulting debtors by converting certain types of Deferred Tax Assets into Tax Credits, within predefined limits. This measure shall free up new cash resources for businesses and allow banks to grant new credit, providing enterprises with new bank finance of up to 10 billion.
“Solidarity Fund” for mortgages for the purchase of main dwellings: the scope of the so-called “Gasparrini fund” has been extended. This fund allows holders of mortgages taken out to purchase their main dwelling, who are temporarily facing specific difficulties, to benefit from a suspension of their mortgage repayments for up to 18 months. Following the Covid emergency, employees whose work has been suspended or who have had their working hours reduced for a period of at least thirty days, self-employed workers (including traders and artisans) and professionals who have suffered a drop in revenues of over 33% compared with their turnover in the last quarter of 2019, are all now allowed to access this fund.
This suspension can apply to both the repayment instalments due after the request is submitted and to those that were due and not paid before said date, as long as the payment delay does not exceed 90 consecutive days. This measure also applies to mortgages granted less than a year ago.
The request form has been updated and simplified compared with the previous version: the new form can be filled in directly online and sent in accordance with the procedures indicated by each bank.
Furthermore, for all cases of access to the Fund:
- it is no longer necessary to present the “equivalent economic situation indicator” (“ISEE”);
- it is possible to benefit from the suspension, even if it has already been used in the past (as long amortisation resumed at least three months ago);
- the Fund is designed to bear 50% of the interest accruing during the suspension period.
Other measures to be highlighted include:
- Strengthening of “Confidi” (consortia of collective credit guarantees) for micro-enterprises, through simplification measures.
- The volatility adjustment immediately coming into force for insurance companies. Introduction of a state contribution for 50% of the interest.
- A rule has been introduced that extends the deadlines and introduces the possibility to partially divide up the indemnity for savers drawing on the “savers’ indemnity fund” (“FIR”), the fund created to indemnify those savers still involved.
- Suspension of repayments due in 2020 for SIMEST loans.