New state programme to aid struggling companies

DDP/The Local
DDP/The Local - [email protected] • 29 Aug, 2009 Updated Sat 29 Aug 2009 15:10 CEST
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German Economy Minister Karl-Theodor zu Guttenberg has announced a plan to create a €10 billion state fund to help companies in credit difficulties, news magazine Der Spiegel reported Saturday.

The rescue fund is designed to help companies with a healthy business plan who are unable to get credit at struggling banks.

The fund is to be administered by the Kreditanstalt für Wiederaufbau (KfW), a state-owned development bank that offers loans to small and medium-sized companies. According to the plan, the KfW will give credit to a company's normal credit institution to be passed on to the struggling company. This system is meant to bypass the need for new credit assessments.

The KfW is to take on 90 percent of the default risk, while the borrower's bank assumes the remaining 10 percent of the risk.

Part of Guttenberg's plan will also aim to provide extra security for Germany's all-important export industry. The KfW is to buy up export credits in order to improve banks' re-financing prospects. In exchange, the banks must distribute equivalent export credits.

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