The Commission
presents a comprehensive report on the functioning of the Guarantee Fund.
The Guarantee
Fund for external actions was established by Council Regulation (EC, Euratom)
No 2728/94 in order to shield the Union budget in the event of any default by
the beneficiaries of loans granted or guaranteed by the EU. The Fund
regulation was amended three times and is currently operating under Council
Regulation (EC, Euratom) No 480/2009. Three reviews of the functioning of the
Fund took place in 1998, 2003 and 2006. Further to the last review in 2006, a
new provisioning mechanism was implemented which entered into force in 2007.
An Inter-institutional agreement between the Council and the Commission
concluded that a full analysis of the new provisioning mechanism be provided.
An evaluation of the Guarantee Fund was commissioned by the Commission in September
2009 with an external consulting company in order to assess the functioning
of the new provisioning mechanism and the different parameters of the
Guarantee Fund particularly the 9% provisioning target rate.
The main
findings of the external evaluation are as follows:
- the Fund is
an effective and efficient mechanism for provisioning for the risks
associated with EU’s external lending actions;
- the costs of
operating the Fund are modest in relation to the budgetary protection
and stability offered by the Fund;
- the current
management methods for the Fund are working effectively and are fit for
purpose;
- the 9%
provision target rate is at an appropriate level and provides a
comfortable buffer against loss. Even under an accelerated scenario (a
type of default as yet not observed with EU lending), the quantitative
assessment indicates that a one in twenty year loss could potentially be
provided for;
- the
provisioning mechanism takes into account sufficiently well the risk
profile of the Fund. Given the unlikelihood of the Fund breaching either
the 80 % or 70% triggers, the current mechanism does allow
satisfactorily for the associated missed loan payment risks.
As regards the
adequacy of budgetary resources foreseen for the Fund, the conclusions of the
evaluation are that:
- the payments
to the Fund that are due to losses are capped by the smoothing mechanism
at EUR 100 million. The modelling results suggest that the smoothing
mechanism and the EUR 100 million limit are appropriate;
- the payments
to the Fund that arise from additional disbursements are projected to
rise above the current annual budget allocation of EUR 200 million.
The main
recommendations are as follows:
- the Fund
should continue to cover the external lending operations of the EU;
- the target
rate of the Fund should be maintained at 9%; although it should be
reviewed from time to time;
- in the next
financial framework, the budgetary resources foreseen for the Fund
should better reflect the expected profile of provisioning needs.
Accordingly, it would be prudent to increase the annual budget
allocation to between EUR 250-300 million;
- further
analysis should be carried out to determine whether the same quality of
portfolio management services could be achieved by the Commission (as
compared to EIB) at a lower cost (in relation to management fees paid to
EIB).
In the light
of the evaluation, the report concludes that the Guarantee Fund in its
present setting functions well and that there is at present no need to
change the legal base of the Fund or any of the Fund's parameters:
- the new
provisioning mechanism has delivered the promised improvement in the
budgetary process with a provisioning based on the observed
net-disbursements. This has resulted in an improved budgetary process
for provisioning the Fund;
- a thorough
quantitative analysis of the risk covered by the Fund and the Fund's 9%
target rate has shown that this target rate and the other main
parameters of the Fund are appropriate. The Commission therefore does
not see a need to change the target rate or other Fund parameters.
Nevertheless these parameters should be reviewed from time to time in
order to consider if they continue to take sufficiently into account the
risk profile borne by the Fund. Such a review will be presented in the
context of the next comprehensive report on the functioning of the Fund
due in 2013;
- under the present
financial framework, the total budgetary resources foreseen for the Fund
are appropriate however improvements exist regarding the profile of the
provisioning needs of the Fund. These should be implemented in the
planning of the post 2013.