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The global financial crisis in 2008-09 saw Chilean private sector banks turn increasingly to loan guarantees to serve the country's SME segments.
Chilean loan guarantee fund Fogape is the biggest provider of loan guarantees in the country, and mainly due to the fast growing demand from private banks, it saw record issuance of guarantees both in 2009 and 2010.
To find out whether private banks are still using Fogape as much as in recent years and about other trends in the financial system's use of loan guarantees, BNamericas spoke with the fund's deputy manager, Alessandro Bozzo.
BNamericas: The last few years have seen private sector banks walking away with an increasingly large share of the guarantees that you issue, especially Banco Santander. Has this trend continued during the second half of this year?
Bozzo: Private sector banks are continuing to show a strong appetite for the Fogape guarantees. Santander is still the largest among the private banks, and those that have increased their demand for guarantees most this year are BCI and Scotiabank.
BNamericas: What about the reciprocal guarantee providers (SGRs)? Have they increased their demand for your guarantees?
Bozzo: The SGRs began to participate in our guarantee tenders in 2009, and in the last quarter's tender there were no less than 10 SGRs participating. So there has been a major increase in demand among the SGRs for Fogape's guarantees.
BNamericas: What are the main benefits of these guarantees for the SGRs?
Bozzo: Our guarantees work like reinsurance coverage for them, and this is important for the ratings they get from the ratings agencies.
BNamericas: Considering that the SGRs are now using the Fogape guarantees much more than a few years ago, how are they doing in terms of the level of defaults on loans backed with the guarantees?
Bozzo: So far, the level is very low. We've had just a few cases of default on loans that were issued with the backing of the SGRs.
BNamericas: And if we look at the overall default level for all the financial institutions that use your guarantees, has there been any impact from the European debt crisis and the fact that the Chilean economy will probably grow less than initially expected?
Bozzo: We haven't seen any impact yet from the crisis, and the overall default level is still very low. During the coming months we will have to see if there is any impact from the events in Europe on the payment capacity of borrowers that benefit from Fogape's guarantees.
BNamericas: How has growth evolved so far this year, and what's your forecast for the full year in terms of the number of guarantees?
Bozzo: It's a bit difficult to compare with 2009 and 2010 because due to the crisis we were authorized by congress to issue guarantees for medium-sized and large companies, and [as of this year] that's no longer the case.
However, when comparing the number of guarantees issued for loans to micro and small enterprises, we've granted 51,581 guarantees by September this year compared to 46,576 at the same time last year. The number of issued guarantees for the full year will be higher than in 2010, but the annual growth rate will be lower because the amount we granted last year was very high [compared to 2009].
Alessandro Bozzo has been Fogape's deputy manager since 2003. Before that, he worked at BancoEstado as senior executive of its real estate and concessions division. Bozzo has also held several executive positions in the local banking and real estate sectors.
During his years at Fogape, Bozzo has conducted extensive consultancy work in the field of loan guarantees for the World Bank, the IMF, the Andean Development Corporation, UNDP and Dalberg Consulting in several Latin American countries. Currently, he is working with the IMF as a consultant to assess the implementation of a partial credit guarantee fund in Haiti with donors' resources.
Bozzo holds a degree in industrial civil engineering from Universidad de Chile and an MBA in management from the Chilean branch of Spanish business school IEDE. He also has a diploma in real estate management from Universidad Católica de Chile.
About the company
Fogape holds quarterly tenders and is administered by BancoEstado.