Banking & Financial Services 3
Medellin-based banking giant Bancolombia announced April 27 that it has approved COP$17.4 trillion (US$4.3 billion) in payroll-coverage loans to 293,000 small, medium and independent businesses in Colombia via a new National Guarantee Fund (FNG) Coronavirus-crisis program.
Under the FNG program, the government of Colombia is assuming 90% of the payback risk, thus helping banks to aid micro, small, medium and sole-proprietor businesses (SMEs) to pay workers temporarily idled by the Coronavirus crisis.
President Ivan Duque announced April 21 that “with a 90% guarantee, to finance those payrolls of the SMEs, there is no excuse for [banks and lenders] not doing so. We also understand the prudence that risk analyses should be done, but we also need to reconcile these quickly.”
In the wake of Duque's remarks about some slowness in lender loan-request response times during the Coronavirus crisis, Bancolombia -- Colombia’s biggest bank – has since responded to a tidal wave of loan requests covered by the new FNG program.
“We are inviting SMEs, businesses and independents to use this [credit] line to secure employment and pay their payroll as this should be a priority,” said Bancolombia Business Vice-President Cristina Arrastía.
The new payroll-coverage loan deal carries a term of up-to-36-months and annual interest rates varying from 7.66% to 12.9%, she said.
“We know that in Colombia SMEs generate 80% of employment and that companies have different needs to continue operating in the midst of this situation.
“This [program] means having more resources to meet short-term needs by having better cash flow, with significant reductions in annual interest payments. Those interested should call their [Bancolombia] account executive for the details of how to access or they can call the phone line 01-800-0912345 without leaving home,” she added.
To access the special credit line, applicants must prove their current payroll -- by providing a copy of Colombia’s mandatory Integrated Contribution Settlement Return (PILA) of the previous month -- and also provide continuing proof of payment of their financed payroll.
President Duque added in his April 21 comments on the new FNG program that Colombia’s Superfinanciera financial regulatory agency “will monitor whether the credits for financing the payrolls of MSMEs are being carried out.”
In addition, the national government has also boosted credit capacity with Banco Agrario and Bancóldex to help agricultural producers and exporting companies confront the current crisis, he added.
It’s a tale of two countries: U.S. President Donald Trump announced April 15 that Coronavirus-crisis emergency loan funds to help U.S. businesses meet payroll are exhausted – just as 22 million more North Americans hit the unemployment lines -- yet Colombia simultaneously expanded its loan programs by COP$16 trillion (US$4.06 billion).
Colombia Treasury Minister Alberto Carrasquilla announced April 15 that the Board of Directors of the National Guarantee Fund (FNG) made the decision to “create three lines of credit and to implement them very quickly.”
The three new lines of credit “will benefit micro-, small- and medium-sized companies (MSMEs) and independent [sole-proprietor] entrepreneurs in the country, and will include loan guarantees of 90% and 80%,” according to the Treasury Ministry.
According to the Ministry, the first line of credits will help MSMEs to meet payrolls "by granting 90% [payback] loan guarantees.”
Through this program, banks and lenders know that “if something goes wrong, the first resources that are lost are not those of the financial institution, but those that the government put in the form of a guarantee,” he said.
“All those employers who are defending their workers and are honoring their labor contracts receive all that support. And the total sum of that line of credit is COP$12 trillion [US$3.05 billion],” he added.
A new, second line of credit worth COP$3 trillion (US$762 million) includes an 80% government loan guarantee and is directed to support working capital. Rationale: MSMEs are not only affected by payroll obligations, but also by “the need for working capital and the financing of their provisions, their suppliers, etcetera,” Carrasquilla said.
The third new line of credit totaling COP$1 trillion (US$254 million) carries an 80% loan guarantee and will be dedicated to helping independent entrepreneurs, he said.
Commissions on these loans will be slashed by 75% via government subsidiy, Minister Carrasquilla added.
Meanwhile, to date, the Treasury Ministry reports that because of new, recently liberalized lines-of-credit backed by the FNG, “Colombian banks have restructured COP$90 trillion [US$23 billion] in loans for the benefit of the productive sector.”
“At this time, Colombian banks have restructured more than 5.4 million credits” just between March 24 to April 10, Carrasquilla revealed.
In addition to more-generous loan terms thanks to new FNG programs, the government also has liberalized payments of income and wealth taxes to help businesses survive the crisis, he added.
The Minister also highlighted support from Banco de la República (the Colombian state bank) by making decisions to ease liquidity for financial institutions.
“The traditional standard in Colombia is [for banks] to have liquidity availability of the order of COP$8 trillion [US$2.03 billion] to COP$9 trillion [US$2.3 billion]. Right now, there are [funding] availabilities of more than COP$24 trillion [US$6.1 billion],” he added.
The International Monetary Fund (IMF) announced April 9 that its executive board will recommend approval of a US$10.8 billion line-of-credit request to help Colombian businesses and workers weather the economic downturn caused by the Coronavirus crisis.
“This renewable credit line helps safeguard against external shocks by providing countries who have very strong policy frameworks and track records of economic performance with large, upfront access to IMF resources -- with no ongoing conditions,” according to IMF.
“Given Colombia’s very strong policy frameworks and track record, IMF managing director Kristalina Georgieva intends to recommend approval of the 2020 flexible credit line [FCL] arrangement for Colombia when the IMF executive board meets again to take a decision in the following weeks,” according to the organization.
In addition to the Colombian Treasury Ministry’s new expansion of finance totaling COP$12 trillion (US$3.3 billion) to micro-, small- and medium-sized enterprises through the “Fondo Nacional de Garantias” (FNG, National Guarantee Fund), Colombia President Ivan Duque announced April 9 further aid to help small/medium businesses meet payroll.
Government loan guarantees for MSMEs will increase to 80%, up from a prior range of 60% to 70%, Duque announced.
In addition, under the new aid program, the Colombian government will “finance for three months those payrolls of micro-, small and medium enterprises [MSMEs], especially covering people earning up to five monthly [minimum] salaries [COP$4.9 million/US$1,260],” according to President Duque.
Vice Minister of Finance Juan Alberto Londoño added that the payroll-finance scheme will enable MSMEs to issue bonds to be acquired by the financial system.
The government also will waive mandatory pension contributions for the next three months, aiming to help both workers and employers to reduce expenses. However, those already retired will continue to receive their normal pensions, he added.
