Financial Services & Fintech
Juncker Endorses National Promotional Banks
On the 22nd of July, the President of the European Commission, Jean-Claude Juncker, announced that a package of measures has been agreed upon which will ensure that the European Fund for Strategic Investment will be in motion in Autumn of 2015, in keeping with Juncker’s ambitious deadline for an Investment Plan for Europe.
The Commission published a communication highlighting the importance of the role of National Promotional Banks (NPBs) in this regard. NPBs are credit institutions whose aim is to advance the public policy objectives of the European Union through promotional loans on a non-competitive, not for profit basis, provided that at least 90% of loans granted are backed by the government.
There is currently an urgent need to boost investment and there needs to be a sensible expenditure of public resources at this point in time. So far, 8 NPBs have committed to a co-financing project of €34 billion which will be geared towards SMEs, job creation, infrastructure, education and renewable energy.
The resources of an NPB would qualify as State aid, as NPBs are mostly financed and supported by the State. Therefore, such interventions would fall under Article 107 TFEU, which declares that state aid which distorts competition is incompatible with the internal market. It however provides for exceptions to this, such as aid to promote economic development. Thus, Member States making use of NPBs would need to abide by the relevant regulations. Depending on the way decisions are taken, an NPB may become a captive institution and must therefore be included in the government sector in national accounts, in pursuance of greater transparency.
The communication encourages cooperation between NPBs and the European Investment Bank through the use of investment platforms. If such platforms are well designed, they have the capacity of attracting private investors, thereby boosting the economy at large. A concerted effort between the EIB, NPBs and the private sector could contribute to achieving the Investment Plan’s goal of mobilizing €315 billion in additional investment over the next three years.
NPBs are present in France, Italy, Spain and the UK. Recently, Portugal, Ireland, Greece and Latvia have established NPBs. Locally, plans are underway for Malta to set up its own Malta Development Bank. This may possibly be done in collaboration with the German government. The German promotional bank KfW was set up after the Second World War with the aim of rebuilding the German economy. Suffice to say, it has succeeded and in 2009 KfW was named the world’s safest bank.