Access to finance of Danube Region SMEs: an overview from the SAFE survey Diego Rodriguez Palenzuela 1 st Danube Financing Dialogue Vienna, 22-23 March.

Access to finance of Danube Region SMEs: an overview from the SAFE

survey Diego Rodriguez Palenzuela

1st Danube Financing DialogueVienna, 22-23 March 2012

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Outline

– The Survey on the access to finance of euro area SMEs (SAFE)

– Access to finance of Danube countries: stylised facts from the SAFE survey

3

Outline

– The Survey on the access to finance of euro area SMEs (SAFE)

– Access to finance of Danube countries: stylised facts from the SAFE survey

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1. Motivation of the survey

1. High economic importance of SMEs in Europee.g. 99.8% of the number of firms in the euro area, 60% of

turnover and 70% of employment

Turnover19%

19%

19%

43%

Number of firms

92%

1% 0%7%Employment

30%

21%17%

32%

MicroSmallMediumLarge

2. Monetary policy transmission different for SMEs– SMEs more bank-dependent and more likely to

be constrained in their access to finance

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1. Main characteristics of the SAFE survey• Joint project ECB - European Commission (DG ENTR) on

the “Access to finance of European SMEs”

• Frequency– Every 6 months: ECB part on latest developments

in financing conditions (focus on euro area countries only)

– Every 2 years: full survey (including all EU countries)

• Five rounds have been published so far :– First half of 2009 (full survey)– Second half of 2009– March-September 2010– September 2010 – February 2011– April – September 2011 (full survey)

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1. Sample size and design

• Large sample: more than 8,500 firms of all sizes in the EU

• Survey designed to have representative results along several dimensions, in particular:

– for each of the largest countries (but not for individual small countries)

– by firm size categories (i.e. micro (<10 employees), small (10-49), medium (50-249) and large (250+)

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1. Survey questionnaire

• “Structural” information: firms’ size, age, type of ownership, sector, nationality, etc.

• Information on the financing needs, use of financing, and availability of finance

• Questions are often: “Over the past six months, has [X] improved, deteriorated, or remained unchanged?”– with [X] economic or financial indicators,

access to or needs for financing sources, or other topics

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1. Dissemination of survey results

• Report on euro area results published by the ECB on its website (+ report published by the EC)

• Home > Statistics > Monetary and financial statistics > Surveys > Access to finance of SMEs

• Complete aggregate tables for all variables and various breakdowns (e.g. size, sector, countries) available on the website

• Last wave (No.5) published 1 December 2011.

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Outline

– The Survey on the access to finance of euro area SMEs (SAFE)

– Access to finance of Danube countries: stylised facts from the SAFE survey

In this presentation, Danube region results pool together Bulgaria, Czech Republic, Hungary, Austria, Romania, Slovenia and Slovakia, excluding Germany which often drives the results. Similarly, Baltic region results cover DK, EE, LV, LT, PL, FI and SE, excluding DE.

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Banks are the main source of financing for Danube region SMEs

• As in the euro area, Danube Region SMEs heavily rely on banking facilities to ensure day-to-day financing

• Leasing/hire-purchase/factoring is also a remarkable source of finance• Trade credit appears slightly less developed than in the euro area

Source of financing used by SMEs in the previous 6 months (in percentage of responding SMEs – from April to Sept. 2011)

0

5

1015

20

25

30

3540

45

50

Inte

rnal

fund

s

Gra

nts

orsu

bsid

ised

loan

Bank

over

draft

or

cred

it lin

e

Bank

loan

Trad

e cr

edit

Oth

er lo

an

Leas

ing

Deb

tse

curi

ties

Subo

rdin

ated

loan

s, e

tc

Equi

ty

Danube region (excl. DE) Euro area

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Danube SMEs face a varied number of issues

• During the crisis, access to finance was the 3rd biggest problem reported by Danube region SMEs

• In 2011H2, it was one of the less often quoted – taken over by competitive pressures and skill shortages

0

5

10

15

20

25

30

35

Findingcustomers

Competition Access tofinance

Costs ofproductionor labour

Availabilityof skilledstaff or

experiencedmanagers

Regulation Other

1999 2011

12

SMEs tend to face tighter credit conditions than large firms…

Spread between interest rates charged on small business loans (i.e. less than 1 EUR million) and large business loans (i.e. more than 1 EUR million)- in basis points -

0

20

40

60

80

100

120

140

160

180

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

euro area Danube countries

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

euro area Balticregion

Danuberegion

euro area Balticregion

Danuberegion

SMEs Large firms

1999 2011

Banks’ willingness to provide a bank loan- in net percentage of respondents -

• … Both in terms of price and lending policies

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Improvement in the financing gap between 2009 and 2011

• During the crisis, there was a clear mismatch between needs for banks loans and a perceived deterioration in the availability of bank loans

• More recently, this financing gap seem to have narrowed substantially. In some countries (SK, BG, RO), banks are seen as willing to provide loans.

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

DE AT HU CZ SK SI BG RO euro area

Needs for bank loans Perceived availability of bank loans

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

DE AT HU CZ SK SI BG RO euro area

Needs for bank loans Perceived availability of bank loans

First half of 2009(in net percentage of responding SMEs)

April to Sept. 2011(in net percentage of responding SMEs)

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Danube region SMEs have the highest rate of loan application rejection

What happened to your most recent loan application (i.e. in the last six months) ?(in percentage of firms having applied for a bank loan)

0

10

20

30

40

50

60

70

80

90

100

euro area Danuberegion

Balticregion

euro area Danuberegion

Balticregion

1999 2011

Don't knowApplied but was rejectedApplied but refused because cost too highApplied and got part of itApplied and got everything

• In 1999, 60% of loan application were granted in full

• In 2011, 67% of loan application were granted in full, but 13% were rejected.

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A majority of firms expect some obstacles in obtaining financing to finance their growth

Looking ahead, what can be the limiting factor to obtain financing ?(in percentage of firms who will need to finance positive growth in the near future)

• Very few firms in the Danube Region consider there is no financing available at all (<3%) compared with 6% in the euro area

• Factors limiting possible financing are either internal to the firm (e.g. credit history) or because of costs of credit

• 40% consider there should be no obstacle to obtaining financing

0102030405060708090

100

euro area Danuberegion

Balticregion

euro area Danuberegion

Balticregion

1999 2011

There are no obstacles Insufficient collateral or guarantee

Interest rates or price too high Other

Financing not available at all DK

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Background information

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MFI interest rates on loans to NFCs

0.0

2.0

4.0

6.0

8.0

10.0

12.0

2008 2009 2010 2011 20120.0

0.5

1.0

1.5

2.0

2.5

3.0

Standard deviation (right-hand scale) GermanyAustria HungaryCzech Republic SlovakiaSlovenia BulgariaRomania

MFI interest rates on loans to NFCs in the Danube region(in percentage per annum)

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Strong growth of loan to NFCs in the Danube region

-10

0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012

Euro areaDanube countries (excl. Hungary and Germany)Danube countries (excl. Hungary)

Loans to non-financial corporations(in annual percentage change)

Note: Hungary series of loan growth present a strong statistical break between June 2010 and May 2011 and has been taken out of the aggregation exercise.