SMEs in peripheral eurozone face far steeper borrowing rates
October 11, 2013 Leave a comment
October 10, 2013 2:15 pm
SMEs in peripheral eurozone face far steeper borrowing rates
By Patrick Jenkins, Banking Editor
Small and medium-sized businesses in theperipheral eurozone are having to pay as much as triple the interest rate levied on German SMEs’ bank borrowing, according to a new report on eurozone credit conditions. The higher cost of credit and the contraction of its availability – legacies of the financial crisis and the regulatory crackdown on bank capital – are “starving” SMEs, according to the report, jointly authored by the Institute of International Finance, the global banking industry body, and Bain & Co, the consultancy.“SMEs in Europe are starving for the financing necessary to fuel job creation and economic growth,” said John Ott, a senior partner at Bain. SMEs account for two-thirds of employment across Europe and their health is central to the region’s prospects of economic revival.
The report found that smaller businesses in Ireland, Italy, Spain and Portugal were paying between 4 and 6 percentage points more for bank lending than counterparts in Germany.
The differential is far more severe than European Central Bank data would suggest. The latest ECB figures show peripheral eurozone countries paying between 1.5 and 2.5 percentage points more than the 3 per cent German average for loans of less than €1m, a proxy for SME lending.
The report – to be published on the fringes of the International Monetary Fund summit in Washington on Friday – also found that new bank lending to SMEs across the periphery plunged by more than a half over the past five years, with the Irish decline of 82 per cent the most acute.
The IIF and Bain conclude that the hardest-hit economies of the eurozone should each form national task forces to address the issue.
Chief among the barriers to better and cheaper credit provision, the report said, was the lack of information about SME creditworthiness. The authors praised existing schemes in France, run by the Banque de France, and in Belgium and the Netherlands, where credit insurers compile standardised business performance metrics.
Such initiatives should now be built on, the report said, with each country devising its own strategy to improve the flow of information about smaller businesses. The project should be overseen by the European Commission.
“Brussels should resist the temptation of a one-size-fits-Europe solution,” Mr Ott said. “Instead [it should] look to build upon the many innovative market-based initiatives we’ve observed across the continent that are helping SMEs gain access to much-needed capital.”
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