Budapest, 5 April 2017 – The contracting period of the third, phasing-out stage of the Funding for Growth Scheme (FGS) ended on 31 March: banks had provided a total of HUF 685 billion financing to domestic micro, small and medium-sized enterprises since early 2016, which meant that 98 per cent of the HUF 700 billion allocated to this stage of the programme was used. Under the three pillars of the Scheme, nearly 40,000 domestic micro, small and medium-sized firms obtained financing of around HUF 2,800 billion on favourable terms. As a result, the FGS was successful in reversing the downward trend in lending to SMEs and contributed significantly, by some 2 percentage points to economic growth between 2013 and 2016, while raising employment by some 20,000 persons.
Following the outbreak of the crisis, lending to the corporate sector declined sharply by international standards, which had the most profound effect on small and medium-sized enterprises (SMEs). In addition to reducing the key policy rate, the MNB launched the Funding for Growth Scheme (FGS) in 2013 as a new element of its monetary policy instruments in order to alleviate strains in lending to SMEs, strengthen financial stability and promote economic growth. Under the FGS, the central bank provided refinancing loans to credit institutions at a 0 interest rate, which they were allowed to on-lend to SMEs at a maximum 2.5 per cent interest rate spread. Forint funding available at long maturities at a fixed, low interest rate offered predictability for SMEs, which helped to expand and smooth their business operations and to implement postponed and new investment projects.
The first phase of the FGS, spanning only three months, delivered the short-term aims set at the time it had been launched: it helped to reduce credit constraints, enhanced competition among banks and played an important role in the conversion of foreign currency loans into forints. In the second phase, launched in the autumn of 2013, the emphasis was on new lending, and in particular on investment loans; longer contracting period and intensifying competition led to the more remarkable participation of smaller customers. In view of the fact that market-based lending should dominate again over the longer term, the third phase of the FGS was launched in early 2016 with the objective of gradual phasing out the Scheme. This phase provided an opportunity for more targeted financing than the previous two phases. In the third, phasing-out stage now ended, banks concluded loan contracts for a total amount of HUF 685 billion, which meant that they used 98 per cent of the HUF 700 billion allocated to this stage of the programme.
A total of HUF 78,000 loan and leasing contracts were concluded in the amount of some HUF 2,800 billion under the three phases of the FGS and FGS+, which contributed to the financing of nearly 40,000 micro, small and medium-sized enterprises on favourable and predictable terms. As a result, the Scheme led to a turnaround in lending to SMEs: following the launch of the FGS the annual 5-7 annual decline in lending stopped and started to rise gradually again. In 2016, the rate of increase in lending reached the 5-10 per cent range deemed by the MNB as necessary for long-term sustainable economic growth. Lending to the SME sector including self-employed persons grew by nearly 12 per cent, while lending to corporate SMEs grew by 8.1 per cent in 2016. Numerous investment projects were implemented from loans granted under the Scheme; according to the MNB’s estimates, the FGS may have contributed to economic growth by some 2 percentage points between 2013 and 2016, and raised employment by around 20,000 persons.
After the FGS is phased out, the transition to market-based lending is expected to be smooth, and, consequently, adequate financing will be available for enterprises. The MNB expects that this year lending to SMEs will continue to increase by the 5-10 per cent rate considered necessary. As a result of the interest rate cuts implemented in the past years, market-based loans also have become available on favourable terms for companies. In addition, the MNB’s Market-based Lending Scheme continues to assist the return to market-based lending, under which banks have committed to increasing lending by HUF 170 billion in 2017. Furthermore, refundable and non-refundable EU funds also support companies, which they should benefit from over the period ahead. Institutional guarantees may play a key role in ensuring that less creditworthy companies have increased access to funding.
The latest monthly release presenting the main statistical features of loans provided under the third phase of the Scheme is available here.