29 April 2020
"Better a good solution than a rushed one"
The banks and the government are offering two solutions for companies affected by the corona crisis: payment holidays for existing loans and a guarantee scheme for new loans. This was announced by Minister of Finance Alexander De Croo on 23 March.
Why did it take so long to clarify the actual arrangements? Wasn’t valuable time lost? And who or what was slowing down the process? We asked Bart Eekhaut, Head Client Advice Team Business Funding at ING, to explain.
Were you yourself involved in the national consultations?
"At the highest level, bank CEOs are meeting with Minister De Croo and the National Bank of Belgium. Below them is a task force made up of people from the executive committees, who request input from a credit committee of which I am a member. I am also chair of the corporate banking committee of Febelfin (the Belgian federation of the financial sector)."
The practical arrangements for payment holidays were not announced until 1 April. Why did this take so long?
"This crisis is totally different from, say, the banking crisis of 2008. That was a gradual domino effect and the cases came to us little by little. This time all the domino pieces fell at once: a whole lot of companies went into lockdown overnight and income streams came to a halt."
"The banks quickly agreed a common approach. But it took a long time to figure out the practicalities of the deferment of payment, to ensure that we could handle large volumes without creating a bottleneck. We assumed that most businesses would have sufficient reserve funds to meet their April monthly repayment. We made manual adjustments for those in real difficulty."
Did the banks themselves benefit from getting it past the end of the month?
"The payment deferment scheme was initially linked to lending. However, this had to be agreed not only with the Minister, but also with the cabinet, the Council of Ministers and parliament, which caused a bottleneck. The ‘payment deferment charter’ is an initiative of the banks together with Minister De Croo, so we ���de-linked’ the two. Once this was done, we were able to work out the practical arrangements in a few days."
What is the impact of the stricter banking rules on this process?
"After the 2008 crisis, the European Central Bank (ECB), together with the Basel Committee, required banks to create larger buffers. When we grant a loan to a business, we have to assess the risk that it will not repay its loan and set aside part of the loan amount as ‘expected loss’."
"During ‘business as usual’, we are not allowed to use those buffers when a customer defaults, i.e. fails or goes bankrupt. But in the current situation we need our buffers to help our many customers in default and tackle the crisis. We needed permission from the ECB, so it took a while longer to work out this arrangement."
Why couldn’t this arrangement be adopted retrospectively?
"First and foremost, because it’s not possible from a legal point of view. But also, you would get the discussion about what to do with customers who eventually didn't need it. The eligibility rules changed between 23 March and 1 April. If we had gone too fast, we would have had to go back to a lot of customers with new rules."
"Now we were able to help the few customers with urgent needs at once and assist them manually. We prefer to deal with the larger group all at once, as efficiently as possible. By not duplicating work, customers can put their time and energy into other things."
Isn’t the payment holiday something of a poisoned chalice if interest still has to be paid?
"Everything has a cost that must be recouped. Banks are a business like any other in that respect. We would get in trouble ourselves if we ignored the huge amounts involved. Waiving interest could also give ideas to companies that do not need a payment holiday, putting those who really need it at a further competitive disadvantage."
"It is also logical that you have to pay more interest, because your loan runs for longer and your capital is outstanding for longer. We are limiting costs for businesses by not charging arrangement fees and keeping interest rates at the same level."
We only got clarity about the guarantee scheme for new loans on 15 April. Why is that?
"It’s not an easy job, because the ECB imposes much stricter rules in this area. It is also much more complicated politically, because it involves use of public funds. This requires political support, which wasn’t needed for payment holidays. When it comes to working out the specifics, ‘the devil is in the detail’. Preparing a basic text is relatively simple, but you have to make it workable in practice."
"Moreover, the circumstances are entirely new. So it’s important to avoid rushing to ‘go live’, but rather to buy time in order to do it well. The application form is available from ING since 22 April, and clients can apply via Business Bank since 27 April."
Do you understand the frustration of entrepreneurs?
"Absolutely! It’s also frustrating for us, because our sales staff want to help their customers as swiftly as possible. But I repeat: the process has to be right first. So we’ll make up for lost time eventually. And customers with really urgent needs can come to us right now."