Lack of executives and cost of borrowing the two thorns of small and medium

By Leonidas Stergiou

Finding suitable staff, with qualifications and experience, but also the high cost of financing are two of the biggest problems faced by small and medium enterprises in Greece, as stated in a speech on Friday by the Governor of the Bank of Greece Mr. Giannis Stournaras, in ΕΣΕΕ. In fact, the latest SAFE survey, conducted by the European Central Bank and the European Commission, finds that for the first time a shortage of qualified staff appears to be a bigger problem than the difficulty of accessing lending that prevailed until the pandemic. And the interest rates for Greek companies are almost more than double the average in the EU.

Financing

The data show that mainly in 2020, Greek companies were supported mainly by support measures, while from 2021, the majority made use of subsidies and guaranteed and co-financed programs. Especially for small and medium enterprises, this percentage in 2021 was 57%. In the first quarter of 2022, according to data from the Bank of Greece, lending to small and medium-sized enterprises exceeds those to large ones, as the former receive 55% of the net credit expansion (1 billion euros).

The contribution of co-financed and guaranteed loans can be seen from the data of disbursements to small businesses that reach 500 million euros in the first five months of the year, with the main sources being Pan European and the programs of the Hellenic Development Bank. In fact, as recently revealed by Capital.gr, almost 400 million euros for loans with a guarantee of 80% remain unavailable, with the risk of losing these funds, as they expire at the end of June.

Borrowing Cost

On the other hand, small and medium-sized enterprises have to compete with their European counterparts, which borrow more easily and at a lower interest rate, almost two to three times lower. According to data from the Bank of Greece, small loans, ie up to 250,000 euros or 1 million euros, are granted at an interest rate of 3.5% -4.5%, when the corresponding European loans are at the level of 2% -2.75% .

Rising interest rates

Borrowing costs may become a more acute problem with the expected rise in interest rates by the ECB in the near future, as almost all business loans have floating interest rates. The impact will become more apparent when the negative, today, euribor becomes positive.

According to bank data, the majority of business loans are linked to the euribor (plus margin). However, the final interest rate does not take into account the negative euribor in most loans. This means that until it goes to zero, most floating loan businesses will not have an impact on the final interest rate.

Then, however, any change in the euribor above zero will cover the cost of servicing the loan. Perhaps, this moment will not be late, as the 3-month euribor follows the ECB refinancing rate which is at -0.50%, where it is expected to increase by at least half a percentage point by the end of the year. It is recalled that historically euribor followed the ECB’s key deposit rate, which is now zero.

With the pandemic and liquidity injections, the interbank rate abandoned the deposit rate and was affected by the ECB refinancing rate. Bank executives estimate that, when liquidity is absorbed by the pandemic, then the euribor can return to its previous course, ie follow the ECB deposit rate, which will be higher.

Lack of staff

In terms of staff shortages, the problem emerges as the main one of the 18% of small and medium-sized enterprises in Greece that participated in the last SAFE report, compared to 16% which is access to bank lending.

The message on Twitter from Mr. Andreas Andreadis, CEO of the hotel chain Sani / Ikos Group and former president of the Association of Greek Tourist Enterprises at the beginning of the month, which became a key topic in the German media is indicative: “There is indeed a huge shortage “Job offer with wages significantly above the industry contracts. The biggest problems are located in the food (kitchen & service) with more than 50,000 vacancies. Solutions are needed now, our quality tourism is in danger.”

Difficulties in finding experienced and specialized executives are faced by other industries and larger companies. According to a survey by the newspaper Capital (Saturday, May 28, 2022), banks face difficulties in finding specific specialties in Information Technology due to digital transformation. A report by Randstad’s human resources company notes that the greatest difficulty is found in IT executives, engineers and engineers, but also in the staffing of legal departments and sales. The biggest problem for attracting talent is salaries, development prospects and quality of work.

Giannis Stournaras

According to the Greek central banker, the gap in corporate lending costs between Greece and the euro area has been limited in recent years: to 170 basis points (bp) on average in the period 2020-2022 compared to 290 bp. on average in the period 2011-2019. This, of course, was largely the result of the ECB’s facilitating single monetary policy.

The level of bank lending rates reflects the credit risk of each country, but also the need for banks to avoid recording large losses, due to the relatively high stock of non-performing loans, and to prevent the erosion of their capital base. As economic activity recovers, the closer we get to an investment grade for Greek government securities and the better the consolidation of bank balance sheets, the smaller the difference in the cost of money in Greece compared to other European countries.

Finally, said Mr. Stournaras, the cost of financing businesses also depends on structural factors in the economy. For example, increasing the average size of companies, strengthening their extroversion and competitiveness, but also the development of the domestic capital market help businesses access to cheap financing. With the development of the capital market, banks are faced with additional competition in terms of providing financial resources to SMEs and the competition leads as usual to price reductions.