We can already see the crisis between companies, says the outgoing head of the National Development Bank
At a time of growing problems in the economy, the National Development Bank is preparing a number of new instruments to help medium and small businesses in particular. There is already a greater demand from companies, mainly for guarantees for loans from private banks, as Jiří Jirásek, CEO and Chairman of the Board of NRB, whose current term of office is coming to an end, said in an interview with SZ Byznys. But Jirásek is applying for the post again.
However, as the editors of SZ Byznys already reported, Jirásek has a significant challenger in the competition for the seat in the form of the former vice-governor of the Czech National Bank, Tomáš Nidetzký. He wants to change the functioning of the bank. Among other things, he wants to promote closer cooperation with other state agencies such as the Czech Export Bank.
In addition to supporting smaller businesses, the NRB group also has to deal with the functioning of its own National Development Fund. With the contribution of commercial banks, he was supposed to co-finance, for example, projects in transport. But even two years after obtaining the license, the fund has yet to finance any major project.
Changes in the functioning of the NRB are also expected by the shareholders, i.e. the Ministry of Industry and Trade, Finance and Regional Development.
National Development Bank
- Národní rozvojová banka, as operated until last year under the name Českomoravská zaruční a rozvojová banka. The mission is to help not only small and medium-sized enterprises, but also regions and municipalities. It also finances the construction of transport infrastructure.
- It was founded in 1992 and its sole shareholder is the Czech Republic, represented by the Ministry of Industry and Trade, the Ministry of Finance and the Ministry of Regional Development.
The economy is in recession, many businesses are facing rising costs. Does the National Development Bank have any new help for companies in such a situation?
Banks of our type help companies more significantly, precisely when economic problems occur. This is reflected in greater demand for our products. The products we have have a twofold basic character. First of all, there are guarantees. Then there are preferential loans. But it is the guarantees that play the main role.
When the risk of an economic problem appears, they are even greater when repaying loans. In principle, commercial banks should make more use of our guarantee instruments. This helps them mitigate risks. Of course, I do this even in good times, but especially in bad times there is a need to help clients get operational or investment financing.
Is it already visible in the demand for your products?
It is visible. By the end of November, we had 3,800 to 3,900 supported projects in the amount of 21 billion crowns. By the end of the year, voluminous financing will be around 22 billion. In 2021, support in our regular products, excluding covid programs, was a total of 17.3 billion crowns.
So are private banks reducing their risks through NRB? Will clients say: “We will lend you, but go to NRB for a guarantee.”?
The principle of the guarantee is that it has the support of proud money to the segment of small and medium companies from commercial banks. The aim is to increase certainty and security, especially in bad times, and to prevent banks from not lending to companies because they will wait for the economic situation to improve.
Just because businesses are under more pressure now, do you need to do more due diligence?
We have to vet all companies that come to us. We use public funds for guarantee schemes. In view of this, we must check clients whether the requirements of economic competition, which is part of the guarantee scheme. A typical example is if the client has the status of a small and medium-sized entrepreneur.
Higher performance
Lately, insolvency proposals filed by the National Development Bank have been seen more frequently in the insolvency register. Is the payment morale of clients worsening?
For the whole of last year, we submitted 51 insolvency proposals. So far this year, there have been 41 proposals. It can of course be influenced by the fact that in a worse economic situation, fulfillment from our warranty shops increases. When we fulfill the guarantee, the moment of the client’s obligation to pay does not disappear. It just switches from a commercial bank to us. We then collect this claim from the client as standard.
If the client communicates, we try to find a solution, for example in the form of an installment plan combined with a notary. If the client does not communicate, we choose other methods of enforcement. Whether it is insolvency proceedings or enforcement in arbitration proceedings. In such cases, we have to act as a good steward and consider what is optimal for the bank. The costs of the mentioned types of enforcement are different.
Do you expect to have to fill more frequently with the economic recession?
This is a completely standard issue. In an economic crisis, the loss is higher. It is a higher sector in commercial banks and logically it is also higher in supporting institutions providing guarantee products. We have already noted fulfillment. So far it’s milder than we expected, but we’ll see. At the same time, some things will manifest themselves later, so we will see how the situation will look in 2023.
The products of the National Development Bank are mainly financed within the framework of European programs for the support of small and medium-sized companies. The use of funds from the last program period is now ending and the preparation of programs for the new period is beginning. In the next year, we therefore expect to gradually introduce around fifteen to twenty new programs and products for small and medium-sized enterprises. That is a very high number. A big topic will be projects to increase energy efficiency. The demand for financing projects to increase energy efficiency is and will be great.
Do these new programs already have a concrete form?
We do not yet have a mandate for this. However, I can say that in addition to our traditional partner, such as the Ministry of Industry and Trade, we should also cooperate more closely with the Ministry of the Environment, with the State Environmental Fund, we should also deepen cooperation with the Ministry of Labor and Social Affairs focused on the special segment of social entrepreneurs . We will also prepare a tool to support small and medium-sized companies directly from the European Commission.
Jiří Jirásek (55)
- He graduated from the Faculty of Economics at the University of Agriculture in Prague
- joined ČMZRB in 1995
- since 2016 CEO and Chairman of the Board of Directors of the Czech Moravian Guarantee Development Bank, appointed in 2021 to the National Development Bank
- since 2019, he is a member of the board of the European Association of Long-Term Investors (ELTI)
A dead project?
Last year you launched the National Development Fund. For example, private banks should also contribute to infrastructure projects. However, the fund has not presented anything big yet. Isn’t this a dead project?
It’s definitely not a dead project. Within the National Development Bank group, the fund plays the role of an institution that is supposed to bring private funds into projects. The management of the National Development Fund works on projects that are mainly in the field of transport. Another topic is projects regarding affordable housing. There are also funding opportunities for teaching hospitals. Renewable energy sources remain a big topic.
The management of the fund is now negotiating with the minister regarding updating the concept of the National Development Fund. The basic idea is to connect more public funds with private funds in order to create financing that will be more beneficial for clients. Among other things, it is about making the fund’s product competitive and interesting for the target beneficiary.
Even under the government of Andrej Babiš, banks pledged to contribute to the projects of the National Development Fund in exchange for the fact that a special sector tax would not be imposed on them. But the current government came up with the WFT tax, which concerns the largest bank. Didn’t that give the banks a reason to contribute to the fund?
As far as I know, despite the WFT tax, the banks still want to support the project of the National Development Fund. Colleagues from the fund’s management communicate with the banks about specific projects.
Last year, you announced that you were considering using funds from the fund to purchase new cars for Czech Railways. How did it end up?
Czech Railways finally decided to finance the purchase of rolling stock in a different way. This is because interest rates rose significantly during the preparation of the project. The National Development Fund provides subordinated loans, not senior loans. And Czech Railways decided to use senior financing directly.
Projects are missing
So the situation still persists that the National Development Fund has a license from 2020 and at the same time it still does not have a single major project.
In order for the fund to invest in projects, these projects must first appear. Most of the infrastructure projects, such as the D35 motorway or high-speed rail projects, are not one-year projects. These are projects for ten, fifteen years.
Why did you decide to run again for the head of the NRB?
During my professional career at NRB, I gained extensive and specific experience, knowledge and contacts in the field of activities of national development banks not only in the Czech Republic. NRB is now at a turning point. One program period of European funds is coming to an end, so the provision of current products is gradually ending and the introduction of new innovative programs is being prepared.
The NRB faces a large number of extremely demanding challenges in the coming years. From the introduction of new support to public entities and entrepreneurs with the aim of facilitating both the financing of their projects in the Czech Republic and their export activities to the implementation of the bank’s digital transformation program. I would therefore like to offer the shareholder my specific know-how and managerial energy.
Do you have the support of the shareholders, i.e. the ministries of industry and trade, finance and regional development, for your candidacy again?
At this time, there is no reason why I should not apply for re-candidacy. All the shareholder representatives even told me that I could apply for the transparent tender.
If you were to be self-critical, could you have done some things better at the helm of NRB? Isn’t there a problem, for example, in the embarrassing start-up of the National Development Fund?
Of course, it is probably always possible to do some steps differently and better. However, I have always acted in accordance with the principle of good stewardship to fulfill the mission of the National Development Bank. I consulted with the shareholder and had the supervisory board approve all strategic steps, and I always had their full support.