Bank battle on small business loans

Of Leonida Stergiou

Turning to retail banking is a strategic decision of the four systemic banks, as they can achieve higher interest rates than the interest margin.

The bet, however, is on the financing of small businesses. The 2022 target for the four systemic banks is the disbursement of new loans of 1.6 billion euros, ie 200 million euros more than last year. Other retail loans, such as mortgages and consumer loans, are running at a rate of 30%. This is a market in which banks are betting on new products that will appear soon, with the National Bank preparing, after Eurobank that preceded with fixed-rate mortgages for the entire duration.

Small businesses

Demand for small business loans is limited due to the small number of eligible companies that meet the banking criteria, while the segment that can be financed does not need direct liquidity and even through a bank. Horizontal support measures contributed to the difficulty of financing small businesses, mainly through repayable advances, as well as the over-disbursement of co-financed and subsidized loans in 2020.

The data show that in 2020, new bank loans to small businesses amounted to 1.97 billion euros, while in 2021 to 1.43 billion euros, down 27.7%. The strategic planning departments of the four systemic banks estimate this year that the amount of new loans to small businesses will move slightly upwards compared to 2021, setting a quantitative target of around 1.6 billion euros.

The new strategy of banks

In order to achieve their goal:

1. They are creating new financial products, such as business loans with a fixed interest rate recently announced by Eurobank.

2. Use of co-financed loans, subsidies and guarantees, with contracts concluded by the four systems (Alpha Bank, Eurobank, Piraeus, National) with the European Investment Fund and with special agreements with the Pan-European Guarantee Fund. As announced, the total guarantees amount to 2.5 billion euros, activating loans totaling up to 6.5 billion euros until the end of the contracts. The aim of the new guarantee program is the immediate strengthening and support of companies from all sectors of the economy, in order to address the economic impact of the Covid 19 pandemic, covering the needs of Working Capital and financing of Investment Plans. Banks are already accepting applications from small and medium-sized enterprises.

3. Online-digital tools on their websites, where every entrepreneur will enter key elements of the company and the system will evaluate it and propose combined financing solutions, according to the standards of “Business Checkup” of Eurobank.

4. Mapping and evaluation of their clientele, but also of competition, as well as companies that do not have bank lending and are active in sectors with growth prospects or that will benefit from the growth of economic activity due to the Recovery Fund.

5. Expansion into industries that were not their traditional clientele. For example, in the primary sector etc.

6. Use of loans from the Pan-European Guarantee Fund for the creation of loans with the possibility of refinancing and reduction of borrowing costs.

7. Utilization of the programs of the Hellenic Development Bank and the NSRF in order to finance sectors with perspective, such as photovoltaics and green energy and innovation.

8. Utilization of the subsidies of the Recovery Fund in combination with co-financed and the new Development Law.

Institutional interventions

At the institutional level, the Ministry of Finance, the Bank of Greece, banks and management companies are looking for improvements in the bankruptcy law that will give more flexibility in refinancing, in the consolidation of small and medium enterprises, in order to expand the perimeter of eligible companies for bank lending. For example, one measure under consideration is the sale of an asset with refinancing, against total settlement or bankruptcy with liquidation of the entire asset.

Also, the Minister of Finance, Mr. Christos Staikouras, is expected, probably, in March to hold a new debate in the Parliament on the financing of the economy by the banks, also giving data on loans given for investments, for refinancing, for consolidations and settings.

2020-2021

The small loan market has grown significantly in 2020 due to the needs and special circumstances caused by the Covid 19 pandemic. Hellenic Development Bank or European Investment Fund). Businesses have benefited from the availability of these programs and the significant economic advantage of more favorable pricing. For 2021 the market seemed to stabilize at 2019 levels.