EBRD: borrowing, difficult for small businesses

The increasingly stronger position held by large foreign banks on Central and Eastern European markets, Romania included, tends to seriously hinder the development of small and medium-sized enterprises from the respective countries, because of the reluctance displayed by these lending institutions towards financing SMEs, according to a survey released by the European Bank for Reconstruction and Development (EBRD).

“In the new EU member states and in those countries about to join the EU, with their markets dominated by foreign banks, trends manifest over the last several years suggest that SMEs encounter much bigger problems in gaining financing than large companies do and cannot expect a significant improvement of lending conditions,” reads the above-mentioned research.

At the same time, the document points to the fact that it is these very SMEs that are playing a crucial role in the development of the private sector and therefore in supporting economic growth.

The EBRD study shows that in Slovenia, where the banking market is not quite dominated by foreign groups, small entrepreneurs are least complaining about difficulties linked to their access to loans granted by banks. Experience accumulated on mature financial markets proves that large banks find it difficult to expand their credit portfolio in the area of small businesses, which are more opaque in terms of information than large companies. “Organisational structures of large banks are devised in such a way as to be able to secure efficiency only when significant financing is involved,” reads the EBRD survey. Under the circumstances, although fiercer competition helps eliminate lending constraints, the small firms’ access to financing is still limited.

Statistical data referring to the connection between the size of a company and the level of financing through banking loans clearly shows that foreign banks already dominating the markets in this region to an extent of more than 55% are not interested in offering their services to small companies, as they do in the case of larger customers.

Practical arguments come up, with regard to the relatively small dimension of networks operated by large foreign banks that do not get close to local businesses. Then, it is also a matter of cultural and communication barriers, of adjusting financing procedures so that they may be understood and accepted by small entrepreneurs. There’s also little willingness of offering flexible, adapted products. Therefore, the relationship big foreign banks have with small and medium-sized enterprises is generally thought to entail much too high costs as compared to the low revenues derived.
razvan.voican@zf.ro