Economy and art - Allianz about financing films

Too many films, not too much money, increase in claims for bank financing. Gábor Hegyi deputy general manager of Allianz Bank talks about film financing.

filmhu: You gave a talk at the Film Week on behalf of Allianz Bank, which has been operating here for one and a half years...

G. H.: From an economic aspect I concluded that there are two major problems in Hungarian film industry. First of all too many films are subsidized directly, in my opinion fewer but bigger productions should be subsidized, in case of which a minimal profit could also be expected. The other problem is in close connection with the previous one: for film producers artistic value is of greater importance than profit. In Hungary, however, other sources are difficult to be found to support arts, because economic risk is higher as a result of the present system and the insecure financial background. 

filmhu:As you pointed out earlier, in other countries art is not definitely a negligible factor for economic operators. In case of Allianz to what extent do the moduls of bank financing follow the international norms and the Hungarian market?

G. H.: Just as much as the Hungarian conditions differ from those of other countries. On the one hand we follow the international financial practices, but at the same time we obviously comply with the laws relating to national subsidization. In Hungary film subsidization has two types: direct and indirect. The indirect, tax-based – or better-known as ‘20 percent’ – subsidy is the one for which the bank had to work out a pre-financing model. The tricky thing is that indirect financing is always subsequent: following the production, as soon as the Film
Office issues the certificate, the producer or supporter gets back 20 percent of the invested money. But only after finishing the production. So to meet the new claim of the market, this subsequent subsidy or rather subsequent financing should be reversed, and accordingly the major part of the 20 percent refund should be given prior to production. 
And now to answer your question: there are countries with different systems, and of course with different bank financing models. Basically the conditions are the same: bank financing must be considered as a loan, and as everywhere in the world this goes with interest, handling and other charges.

filmhu: What financial constructions can you offer? 
 
G. H.: Our extra advantage is that we can provide film insurance, production warranty and financing within our company group. As for financing: in particular cases Allianz Hungária Insurance Company contributes to film productions as supporter, and Allianz Bank can pre-finance this subsidy on certain conditions. To put it more simply: we can provide a certain part, usually 90 percent, of the 20 percent indirect subsidy to the producer at the beginning of production on relatively favourable terms and demanding of course certain guarantees in return. For example if Allianz is the supporter, if the production is insured, or it has an insurance guaranteeing the finishing of the shooting. The latter is rather important, as on the one hand it is
a financial guarantee for the bank that the loan will be returned, and on the other hand in compliance with the guarantee contract the insurance company can watch the different stages of production and can check if the production budget is exceeded in a given stage or the production and payment deadlines are met. We can even make sure if the shooting takes place within the borders of the country because only productions are entitled to subsidies which employ subcontractors who pay their taxes in Hungary.

filmhu:Is indirect subsidy based pre-financing influenced by the fact that the Hungarian Film Law, or to be more precise state guarentee included in Hungarian Film Law is ‘in danger’ in the European Union?

G. H.: As far as I know, though I am not a competent expert on this issue, the EU does not want to accept it, because they would like to introduce a cultural test to see whether certain works are of cultural value. I think the present statutory regulations comply with these conditions, but lacking the appropriate terms – i.e. cultural content. In my opinion the European Union should give the Hungarian film support system the green light, considering that this kind of system exists in other countries too. The rejection of this system would be a serious drawback to the market, especially to international productions being shot in Hungary.

filmhu:Back to financing: besides the guarantees listed above, may artistic credit in itself be a guarantee for the bank?

G. H.: In this respect Hungary is still behind the west, and the highly developed international practices. There the name of acclaimed producers, who have a great deal of experience, mean guarantee without having any further conditions. In Hungary the situation is different with few exceptions. Some producers’ reliability guarantees that all financial guarantees will be fulfilled by the beginning of production.

It may happen that – after the examination of the company – we give a loan directly to a filmproducer. This system, however, would differ from film financing and would be rather like a general loan, as we would lend money to the filmproducer and not to the film. As we see it, many companies choose this solution, but only few of them keep economic interests in mind.

filmhu:Talking about economic interest: do you select keeping rate of return in view? What is that budget threshold when you say  it is well worth financing a production?

G. H.: Of course there is a volume limit – if the total budget is between 50-100 million forints, the bank may go in for financing it.

filmhu:It means first of all the producers of feature films may reckon on bank finaning. When you worked out the conditions of financing, which target group did you take into consideration: paid work, coproductions or Hungarian productions?  

G. H.: At the beginning we mainly thought of films made with paid work, but not because of the size of the budget, but because of film insurance guarantee – it is self-evident to take out insurance abroad, and as I have already mentioned this means security for the financing bank above all. In Hungary producers do not take out such guarantees. This is the reason we created for Hungarian productions a special guarantee relating to the finishing of films, with lower costs and lower risks.  After all every bank needs security in return for their loan and as this security is very rare in case of Hungarian productions, this guarantee relating to the finishing of the films could be a solution. As a conclusion, there are no target groups, rather guarantee-conditions.