France could see losses of up to 6% on state-guaranteed COVID loans – central bank

PARIS, Jan 27 (Reuters) – France could see losses of up to 6% on state-guaranteed loans to companies to help them through the coronavirus crisis, the head of France’s central bank said on Wednesday.

Banks have lent more than 130 billion euros ($158 billion), guaranteed by the French government, since the crisis broke out last year, more than in any other European country.

That has pushed French companies’ debt burdens to record levels, although the central bank points out that many firms have held onto the funds as a precaution rather than spend it.

“For our current estimate (of losses), I’m going to give a range of 4.5% and 6% of the total state-guaranteed loans that could see losses,” Bank of France Governor Francois Villeroy de Galhau told the Senate’s finance committee. The state would bear 90% of the losses, and banks 10%, he added.

The surge of French corporate debt has raised concerns among business leaders, the finance ministry and the central bank that French firms will emerge from the crisis with seriously strained balance sheets and unable to make investments for future growth.

The finance ministry and the central bank both estimate that collectively French companies will need about 20 billion euros in fresh equity after the crisis.

In the coming weeks the finance ministry aims to present plans for new state-guaranteed subordinate loans offered through banks that would not count as debt on firms’ balance sheets.

Villeroy said the scheme needed to be set up quickly, but it was also important to have other plans to support firms’ balance sheets and involve asset managers and insurers.

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