Deputy Prime Minister Mehmet Şimşek said that the undersecretariat of the Treasury has finalized works on a new loan guarantee mechanism which will offer 100 percent bail to exporters and 85 percent bail to small- and medium-sized enterprises (SMEs) in an attempt to eliminate their problems by providing financing and reducing the financing costs for banks.Speaking to Anadolu Agency (AA), Şimşek noted that he ordered the undersecretariat of the Treasury to initiate work on a mechanism which can add the portfolio guarantee system to the existing system. He added that the loan bail system, which was launched in 2009 to eliminate SMEs' trouble accessing loans because of the 2008 global financial crisis, has been completely changed and made more efficient.According to Şimşek, the loan guarantee mechanism has been reconstructed through a draft Cabinet decree and the scope of the bail system has been expanded. The mechanism brings innovation, improved conveniences and further advantages for SMEs, exporters and financial institutions. After the economy administration saw that it was not possible to achieve objectives at the desired level through the previous Treasury-backed bailout system, which was practiced by the Credit Guarantee Fund, a need for fundamental changes emerged. The most important change in the new system is the practice of the portfolio guarantee system on bail. Through the practice, exporters and SMEs will have access to the Treasury bail within the bounds of credit limits without any delay at the request of banks. As soon as banks approve loans for companies, the right to have the treasury bail will automatically arise. Therefore, it will be possible to meet bail demands within one day. The practice will accelerate the loan obtaining process for exporters and SMEs and reduce bail costs.Credit rating system to be introducedAnother change is the elimination of the Credit Guarantee Fund's credit approval committees which were previously in charge of the approval of demands for high credit bails. Instead, a credit rating system will be introduced in an attempt to eliminate the loss of time and the incurred financial costs from the equation which were created by the credit approval committee, and to enable the system to operate more efficiently. Exporters and SMEs that will be provided bails will be determined by the Credit Guarantee Fund according to objective criteria. This will accelerate the process of gaining access to the Treasury bails.Due to credit risks of local businesses being shared by the undersecretariat of the Treasury with higher bail rates, Şimşek said that these changes will allow businesses to be perceived as less risky in the financial system.Treasury bails will also enable businesses to use loans with lower interest rates. As the system expands, interest rates will fall further and the Treasury will provide up to 100 percent bail for Eximbank loans offered to exporters. Moreover, the bail rate for other loans provided to exporters will increase up to 85 percent. In addition to exporters, SMEs will also take advantage of higher Treasury bails. The Treasury bail rate for SMEs will be increased to 85 percent from the current 75 percent. The Treasury will be able to use a total of TL 2 billion of fund which has been allocated to be used as bails. This amount allows the Treasury to provide up to TL 20 billion worth of credit opportunities for exporters and SMEs.Financing costs for banks expected to fallThe reform-like regulation will bring significant advantages to financial institutions, in addition to exporters and SMEs. As is already known, when a financial institution provides a loan to a business, that business needs to make provisions in accordance with the risk group it is in, within the framework of banking legislation. These provisions have a negative effect on the business's capital adequacy and urges banks to give priority to businesses which have solid collaterals. The collaterals owned by loan-demanding businesses either increase or decrease the allocated provision amount in proportion to the types and amounts of collaterals. Pledging Treasury bails as a collateral for loans will lead to loan-providing banks allocating less capital collaterals and enabling them to have a more efficient liquidity and capital structure. The new system, which is aimed at eliminating exporters and SMEs' troubles with financing, will also increase the loan volume of banks as well as profitability due to falling loan costs. This will cause banks to use more Treasury bails and make it easier for exporters and SMEs to access loans. Şimşek stated, "In sum, the new regulation will introduce a more holistic and clearer framework and accelerate the bail obtaining process. As well as satisfying all parties, it will also alleviate problems in loan procurements."