Bulgarian SMEs set for loan boost as EU’s COSME programme pivots to Covid-19 support

Micro, small and medium-sized enterprises (MSMEs) in Bulgaria will have the opportunity to finance their growth and business development plans, digital transformation and post-Covid-19 recovery through loans with more flexible terms, as the European Investment Fund (EIF; part of the European Investment Bank Group) and United Bulgarian Bank (UBB) have agreed to more than double an existing guarantee agreement to cover new UBB MSME loans for 400 million euros.

The loan guarantees are provided by the Competitiveness of Small and Medium-sized Enterprises (COSME) programme, launched by the European Commission to improve access to finance for SMEs.

The agreement brings the total amount of COSME-guaranteed loans available to MSMEs financed by UBB to 768 million euros (1.5 billion leva). It also introduces two new guarantee initiatives under the COSME Loan Guarantee Facility in Bulgaria: COSME Covid-19 and COSME Digitalisation, designed to help SMEs recover from Covid-19 and digitalise their business operations.

Bulgarian SMEs will be able to apply and benefit from COSME-guaranteed loans with UBB until September 2023.

According to Lilyana Pavlova, the vice-president of the European Investment Bank, the agreement brings a fresh 400 million euros in more affordable financing to Bulgarian MSMEs. “These funds will help MSMEs finance development and growth plans, preserve jobs and digitalise their businesses. Together with our EU and UBB partners we have unlocked new opportunities for faster economic and social development in Bulgaria and faster recovery from Covid-19,” she says.

European Commissioner for Internal Market Thierry Breton adds: “Through the coronavirus support under the COSME Loan Guarantee Facility, the Commission and the EIF have made immediate liquidity available to micro, small and medium-sized enterprises. During this very challenging time for many companies, especially small ones, we are fully mobilised to help Bulgarian companies digitalise their business operations and get swift access to finance for their recovery.”

Peter Andronov, chief executive director of UBB and country Manager of KBC Group in Bulgaria, adds: “Up to this point, UBB has provided financing for more than 4,000 transactions under the COSME programme, with a total amount of more than 800 million leva. The new annex, which enables the bank to create a total portfolio of more than 1.5 billion leva under the COSME programme – including these two new guarantee envelopes – is a natural continuation of the successful cooperation between UBB and the EIF in support of the development, capacity advancement and betterment of the processes of SMEs in Bulgaria.”

UBB was the first bank in Bulgaria to offer financial products guaranteed by the COSME Digitalisation Pilot and COSME Covid-19 Support Measures, both additional financing under the COSME programme launched by the European Commission and implemented by the EIF. The COSME Digitalisation Pilot supports the digitalisation of SMEs in Europe by guaranteeing 70% of eligible loans provided by banks, while the COSME Covid-19 Support Measures provide guarantees for 80 per cent of loans for recovery from the COVID-19 pandemic.

Under the COSME Covid-19 guarantee programme, UBB plans to support Bulgarian SMEs with loans worth 125 million euros (245 million euros).

Following economic growth of 3.4 per cent in 2019, which was driven mainly by private consumption, Bulgaria is currently experiencing a deep recession. A state of emergency, declared in mid-March, imposed tough restrictions on travel and resulted in a sharp decrease of economic activity in March and April.

Economic activity started to gradually recover from May onwards amid the lifting of most restrictions. However, the recovery slowed and numbers of people testing positive for Covid-19 rose in mid-summer. The full impact of the crisis was seen in the second quarter, when real GDP dropped by 8.7 per cent year-on-year. Private consumption decreased by 2.4 per cent year-on-year in the first half of 2020, while investments fell by more than eight per cent year-on-year.

Exports of goods, totalling about 50 per cent of GDP and making Bulgaria only moderately dependent on trade, decreased by about three per cent year-on-year in the first half of 2020.

The biggest hit to the country’s economy has been in the tourism sector. Foreign arrivals stopped almost completely in April and May and have been slow to recover since then, declining by 75 per cent year-on-year in June and 65 per cent in July. The government’s crisis response package of about five per cent of GDP has focused on preserving jobs, helping vulnerable groups and providing liquidity support to firms.

In July, however, Bulgaria joined the EU’s Exchange Rate Mechanism (ERM II) and the Banking Union, paving the way for euro adoption. The European Bank for Reconstruction and Development (EBRD) last week said that it expects Bulgaria’s GDP to fall by 5.5 per cent in 2020 and bounce back with a three per cent growth rate in 2021, assuming gradual normalisation of economic activity in Bulgaria and its main economic partners from late 2020.

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