Lending tap remains firmly closed; Bank loans off limits to businesses

By Marcus Bensasson

Some recent reports have suggested Greek banks really want to increase lending to businesses, but just aren’t finding enough demand. Companies are either using subsidized loans to refinance existing borrowing, or other government programs are allowing them to meet their liquidity needs.

The latest figures from the Bank of Greece show that the flow of net lending to businesses actually turned positive again in September, even if the annual growth continued the decline. Still, in the first nine months of the year there was just 283 million euros of net new lending to non-financial corporations, compared with 6.7 billion euros for the whole of 2020.

Stripping out debt securities to look at just loans, credit flows to businesses were actually negative between January and September, with a negative net lending flow of 240 million euros.

The banks have taken some mild political heat for not lending more, so some of the briefing by bank officials is to publicly say that they’re trying their best.

And it would appear true that the crisis has given companies — including small and medium-sized enterprises — the opportunity to change the term structure of their liabilities. In the first news story linked above, bank officials are complaining that companies used subsidised working capital loans under the TEPIX programme to pay off existing bank loans.

That’s backed up by Bank of Greece data that show spikes in flows to credit to SMEs last year in months corresponding to TEPIX deadlines. The data also show a surge in lending for maturities of between two and five year — TEPIX working capital loans have two-year maturities — with drops in short-term lending.

Total bank lending to SMEs amounted to 6 billion euros in 2020 and 2.5 billion euros in the first nine months of this year. However, after subtracting the amount flowing back to the banks, those figures drop to 2.2 billion euros of net new lending in 2020, and just 267 million euros so far this year.

If it were the case that SMEs have all the access to finance that they need and are just sitting on their eggs (to use a Greek expression), this would only be a problem for banks seeking to increase profit margins. However, that isn’t the case.

Last week the Bank of Greece released the lending survey for the third quarter, which showed that demand picking up for all categories of loans since the second half of last year. It also shows there was a slight increase in the ratio of rejected applications in the last quarter.

The European Central Bank’s most recent survey on the access to finances of enterprises, published in June, shows that Greece is a clear outlier in the euro area in the extent to which access remains a major problem for SMEs. According to the survey, 18 percent of SMEs cited it as the biggest problem they faced, with 22 percent of firms reporting difficulties in accessing bank loans.

The survey also underlined the importance of government support in the absence of further access to bank financing, showing that 56 percent of SMEs had received some form of support other than wage support and tax cuts.

This article was first published at https://www.grecology.org/ .

The full article can be seen here.