How collaterals are dealt with in Germany

Transcription

1 How collaterals are dealt with in Germany Operational Training Session (OTS) on Policies and Procedures for Collaterals Dieter Fleischer, Verband der Deutschen Bürgschaftsbanken (VDB) Maribor, April 16th

2 Agenda Characteristics of the German Guarantee Banks Features of the offer Collateral requirements Collateral - procedure 2

3 German Guarantee Banks features of the offer Non-profit and private self-help institution Guarantee Banks are tax exempted due to their promotional mandate. Shareholders are all major network partners in the economy: Chambers of Industry and Commerce, Chambers of Craft Trades, trade and liberal profession associations, leading credit institutions / insurance companies as well as the Banking Association. The Guarantee Banks operate in a competitively neutral way. Target group: founders of new businesses as well as small and medium-sized enterprises (mainly on the basis of the EU definition: maximum of 250 employees, maximum sales of EUR 50 million, maximum total assets of EUR 43 million) Independent Guarantee Bank in each federal state Counter guarantees granted by the federal government and the state of Baden- Württemberg 3

4 German Guarantee Banks features of the offer House bank principle is a basic requirement Cooperation with all credit institutions (competitively neutral) House bank has to bear at least 20 % of the risk House bank must comply with the conditions and requirements of the Guarantee Bank House bank enters into collateral agreements and administers the collateral House bank has to manage the guaranteed loan and the accompanying collateral apart from other businesses with the borrower Changes in the credit relationship (house bank customer) require approval of the Guarantee Bank (maturities, release of collateral etc.) 4

5 German Guarantee Banks features of the offer House bank has an obligation to provide periodic information (e.g.: outstanding payments) In the event of a default the house bank remains responsible for recovery In the event of a default: house bank has the right to get a partial payment from the Guarantee Bank (estimated default) Default guaranties: House bank can only draw these down after the existing collateral has been realised 5

6 Process for granting loans house bank principle Company Entrepreneur House bank Application Guarantee Bank Audit, possible discussions Implementation of the financing with the company Guarantee document Sent to the house bank Chambers, associations Involvement 6

7 Why collateral? For the borrower: In Germany collateral affects loan classification. In general, loan classification is based on the financial condition of such entities as the borrower, guarantor and collateral. For the house bank: Collateral reduces the risk in case of default For the Guarantee Bank: Reduction of risk and making sure, that house bank and borrower do not shift all credit risks to the Guarantee Bank 7

8 Collateral requirements In principle, a guarantee is issued regardless of any collateral (however, the objective is to obtain personal / business collateral where possible) Only collateral relating to the specific project is generally available to the Guarantee Bank (e.g. in the case of machinery financing: transfer of the machinery by way of security) Personal liability is generally required (exceptions are possible) Special collateral may not be provided for the non-guaranteed portion of the loan Collateral applies to the guaranteed and non-guaranteed loans on a proportionate basis If, at a later date, the house bank participates on additional collateral for the part of the credit, which is not covered by the guarantee, she has to arrange with the borrower, that this collateral shall be liable proportionately for the guaranteed part of the loan as well as for the part not covered by the guarantee. 8

9 Collateral requirements Collateral may only be released or substituted with the consent of the Guarantee Bank (no consent needed when cars or machinery are substituted when the value of the collateral is not affected) Collateral is valued very conservatively by Guarantee Bank New: To simplify the house bank s handling of collateral, the German Guarantee Banks intend a marginal change of their general standard terms and conditions regarding the duty of care of the house banks the house bank is allowed to use the same degree of care as it does in its own business (at present: higher degree of care required). 9

10 Types of collateral Property / assets Factory promises, residence Machinery, vehicles Inventory, goods depot Shop fittings Customer claim / account receivable Third parties / other persons Life insurance Credit balance Type of Collateral Land charge Transfer by way of security / Chattel mortgage Transfer by way of security Transfer by way of security (Blanket) Assignment / cession Guarantee Assignment / cession Seizure 10

11 Collateral - procedure Valuation of collateral In determining the risk provision, collateral is valued in accordance with a defined collateral valuation procedure (collateral catalogue). This valuation takes into account the crucial commercial principle that the value of the collateral should be recoverable even in the event of liquidation (principle of a loss-free valuation as defined in 252 (2) no. 4 of the German Commercial Code (HGB)). 11

12 Collateral - procedure Extract from the collateral catalogue Collateral Valuation approach Land charge: - Factory promises - Home / residence Blanket assignment Transfer of inventories by way of security Transfer of business equipment and shop fittings by way of security Machines / vehicles (new purchases) Business equipment and shop fittings (new purchases) 60 %* 80 %* 10 % (basis: value from the last balance sheet minus creditors) 10 % (basis: value from the last balance sheet minus creditors) 10 % (basis: book value, if not older than 18 months, otherwise = 0) 50 % of purchase price 20 % of purchase price These valuation approaches are standard rates. Additional risks are taken into account on a case-by-case basis and may result in a lower valuation. * The basis for the valuation is the loan value determined by the house bank. The calculation of the loan value is identical for all types of banks in Germany. But: each institution can determine the limit of this value as it pleases ( = the limit, up to which the house bank is willing to encumber the collateral) 12

13 Contact Dieter Fleischer Bürgschaftsbank Baden-Württemberg GmbH Werastr Stuttgart Internet: Phone: Mail: 13