An ongoing "Copernican revolution" in the world of corporate credit: this is the scenario that emerges from the “Confidi in Italia” research, promoted by the Torino Finanza Committee, in collaboration with the Department of Management of the University of Turin.
Certain elements are drawn to attention: the new relationship between banks and guarantee consortia; the numerical composition of the consortia structure; the growing disintermediation in the corporate credit chain; the rampant crisis that has repercussions on the solvency of companies.
A quarter of Italian SMEs rely on trusts to obtain loans from banks, but the novelty is that credit institutions no longer ask for the Confidi guarantee, thanks to the possibility of directly accessing the Central Guarantee Fund: the latter is therefore the real deus ex machina for overcoming the credit crunch.
The imposition of "minimum volumes" by the Bank of Italy also weighs on the consortia system: this results in the decrease in the number of guarantee consortia, following the aggregation process aimed at creating entities that respect the 150 million volume and strengthen their presence on the market.
As at 31 December 2015 (last reporting date) there were 334 confidi in Italy, of which 39 supervised by the Bank of Italy (so-called pursuant to article 106 of the Consolidated Law on Banking), subject to minimum volume regulations and 295 unsupervised (so-called pursuant article 112 of the TUB). In the South and in the islands there is the greatest density of trusts (46%), followed by the North (36%) and finally in the Center (18%).
As regards the volumes of activity, however, the consortia operating in Northern Italy hold more than half of the guarantees disbursed. This misalignment is due to a greater consistency of confidi 106 present in northern Italy.
The negative trend of loans to SMEs has been confirmed (-5% compared to the previous year) but with a distinction compared to the past: the banks are once again dealing with it directly. Thus the consortia are losing ground: at the end of 2015 the guarantees issued by the consortia for loans granted amounted to 10,5 billion euros, against 13,1 in 2014.
THE MAJOR CHANGES OF THE LAST 5 YEARS
Collateral market: in 2011 they were 21,648 billion euros; at the end of 2015 they are 10,5 billion euros; currently the volume is therefore equal to 50% of those disbursed 5 years ago. From 2006 to 2011 it had instead seen growth with an average annual increase of 4.67%.
Number of active trusts: in 2011 there were 510; in 2015 there are 334 and the trend is towards contraction.
Insolvency: SMEs are finding it increasingly difficult to repay their loans: in 2015, 59% of the credit guarantee associations in the sample increased the nominal stock of guarantees being enforced compared to 2014. All this is reflected in the solvency of the credit guarantee associations themselves.
RESEARCH SUMMARY
Performance and state of health of credit institutions
Observing the variation in the stock of guarantees disbursed in the two-year period 2013-15, out of a sub-sample of 42 credit guarantee institutions, only 11 managed to increase their business volumes.
This growth derives from the support received from the reference regions or from the expansion of the offer to neighboring regions or to sectors not previously covered. Among the trusts that record the best growth performance we find companies with strong regional roots: Cofidi.it, Sardafidi, Confidicoop Marche, Confapi Lombarda Fidi, Fidimed and Ga.Fi.
Insolvency and Solvency
The relationship between credit guarantee consortia and SMEs sees a constant deterioration also in terms of insolvency: more than half of the credit guarantee consortia in the sample have increased the figure which represents the situations being enforced by the credit institutions. Impairment dynamics have also worsened compared to 2014: gross impaired assets are on the rise for 65% of the credit institutions in the sample.
The trend regarding the solvency of loan guarantees is confirmed as negative. The dynamics of capital decrease had an impact on the solvency of Italian confidi, which decreased for 41% of the sample. In any case, the solvency of the credit lines registered in the Single Register remains at good levels: only 5% of the credit lines in the sample have a Total Capital Ratio (TCR) lower than the minimum threshold defined by the supervisory instructions of the Bank of Italy.
Banks and Confidi: some differences between 106 and 112
The nature and size of the latter play a fundamental role in the relationship between banks and consortia; but, despite bringing customers to the banking world, positioning themselves as guarantor of loans with their own assets and having played a "bridge" role for overcoming the credit crunch, only 9% of the consortia consider themselves in a strong position compared to the banks, while more and more it is considered an equal relationship.
The intermediaries supervised by the Bank of Italy (the so-called 106):
– have greater financial capacity to grant loans to SMEs
– boast greater relations with banks: the number of agreements is four times higher than those of unsupervised ones (50 credit institutions against 12)
– have greater bargaining power with credit institutions: 83% of supervised credit lines have negotiated the cancellation of credits claimed by banks in cases of crisis, against 48% of 112.
The trusts 112:
– are widespread throughout the territory
– they represent a link in the local economy between the productive fabric and the banking institutions active in it
– have direct knowledge of all the qualitative elements important for the credit risk assessment process of companies.
Future scenarios: aggregations and network contracts
As a response to major changes, especially of a legislative nature as well as of a market nature, the consortia are heading towards aggregations and network contracts.
Mergers (the process by which two or more entities merge to create a single one that is more competitive on the market) is a phenomenon that particularly affects supervised entities: in the last 14 years, out of 39 entities registered in the 106 register, as many as 31 have given the start of merger processes with other guarantor bodies (79% of the total). Diametrically opposite figure for the unsupervised, where 77% have never applied this strategy.
As regards network contracts (a tool for sharing skills, knowledge and best practices to enrich individual participants and increase their contractual strength and competitiveness), they are successful for all consortia: they find the adhesion of 61% of the 112 and 54 % of 106.
In general, the new rules are an accelerator of competition within the system and the cause of new strategic choices for each consortium: merger with other consortiums, geographical development of the market and diversification through new products.
Confidi and public resources: more efficiency with more information
The 2017 research explores the theme of the allocation of public resources; specifically, the indicators taken into consideration by the policy maker to decide who to assign the increasingly scarce resources.
In addition to traditional indicators (number of associated companies, value of guarantees granted and loans in the territorial area of responsibility of the sponsoring administration), the experts propose other universal, reliable and representative indices that can play a key role:
Ø Annual default rate: an indicator of borrower selection ability in the form of “dynamic effect of risk”
Ø ParaTCR: an indicator of the ability to fulfill the guarantee obligations and the associated “current risk”;
Ø Acid Test Ratio (ATR): an indicator of the degree of liquidity of resources to meet, in the short term, the guarantee obligations;
Ø Trading margin: an indicator of the economic sustainability of the business model.
The availability of the data allows serious analysis, case by case, in the light of significant benchmarks on all credit lines. It is probable that also the public finance constraints (think of those for the chamber of commerce system) push the sponsoring administrations to exploit the new information arsenal - at full capacity with the 2016 budgets - in order to allocate their resources more efficiently.
