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

1. Access to finance of Danube Region SMEs: an overview from the SAFE survey Diego Rodriguez Palenzuela 1st Danube Financing Dialogue Vienna, 22-23 March 2012

2. 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 3

4. 1. Motivation of the survey • High economic importance of SMEs in Europe e.g. 99.8% of the number of firms in the euro area, 60% of turnover and 70% of employment • Monetary policy transmission different for SMEs • SMEs more bank-dependent and more likely to be constrained in their access to finance

5. 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)

6. 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+)

7. 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

8. 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.

9. 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. 9

10. 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) 10

11. 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 Danube SMEs face a varied number of issues

12. SMEs tend to face tighter credit conditions than large firms… • … Both in terms of price and lending policies 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 - Banks’ willingness to provide a bank loan - in net percentage of respondents -

13. Improvement in the financing gap between 2009 and 2011 April to Sept. 2011 (in net percentage of responding SMEs) First half of 2009 (in net percentage of responding SMEs) • 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. 13

14. 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) • In 1999, 60% of loan application were granted in full • In 2011, 67% of loan application were granted in full, but 13% were rejected. 14

15. 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 15

16. Background information 16

17. MFI interest rates on loans to NFCs MFI interest rates on loans to NFCs in the Danube region (in percentage per annum) 17

18. Strong growth of loan to NFCs in the Danube region 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. 18