Rejection of applications for business loans has increased – The reasons

By Leonidas Stergiou

The simultaneous decrease in the demand for lending and the tightening of credit criteria recorded in Greece since the third quarter of 2021 is described in the annual report of the European Investment Bank (EIB) for Greece.

According to the report, the percentage of companies that faced problems in accessing bank lending increased in 2021 to 15.5% compared to 13.1% in 2020. The biggest problem was faced by the construction industry and small and medium enterprises. In these companies the respective percentages rose to 20% and 22%, when the difficulty rate in the EU fell to 4.7%.

The biggest part of the problem related to access to bank lending had to do with the increase of the rejection rate by 30% in 2021, compared to 2020. In particular, in all companies, from 10% in 2020, the rejection rate amounted to 13%. The highest percentage of rejections was in the construction sector (17%), with the services sector following at 14%. In small and medium-sized enterprises, the rejection rate reached 16.5%. In large companies, the rejection rate was close to the European average of 4%.

In the loans that were not rejected, the small and medium enterprises, in the EIB survey, stated that they were not satisfied mainly with the interest rate and the guarantees, while the infrastructure sector added the issue of the duration of the loan.

According to bank executives, the reduction in the duration and amounts of disbursements was the result of an effort to reduce risks. In this direction, ie in reducing the risks, both the banks and the companies themselves proceeded. Something that is still true today. According to the same sources, the demand for business loans was reduced from the third quarter, while the banks increased the borrowing costs marginally and the criteria were tightened.

This change, although marginal, was evident due to the small number of companies that meet the banking criteria for lending. The change is mainly due to the uncertainty about:

– The prices of energy spent on the cost of raw materials.

– The supply chains.

– ECB decisions in December on interest rates, bond markets and its attitude towards inflation.

Moreover, the above uncertainties have already affected the money and capital markets, which from the third quarter until today have been tested by the uncertainty of the Omicron mutation.

The EIB also notes that Greek companies received more support through pandemic measures, at 58%, compared to 56% in the EU. additional support from the state (eg repayable advance) rather than bank lending). Especially for support that does not need to be repaid, its use in Greece by small and medium enterprises was 36%, compared to 16% in the EU.

Of the types of financing that dominated in 2021, the EIB records that bank lending was the main source for large and small businesses. However, overall it was limited – more to small and medium. In the latter, the support from the various measures has almost quadrupled, compared to 2020. Therefore, the majority of companies had liquidity.

At the same time, both businesses and banks have become more reluctant to take risks. This is confirmed by a recent analysis of the ECB, but also by the data on the credit expansion published by the Bank of Greece, which show the evolution of loans until November. The above uncertainties seem to have affected the retail banking -mainly consumer loans- due to falling consumer confidence.

Banking sources say that the demand for business loans remains lower than expected due to uncertainty, something that is expected to be overcome in the near future, with the main catalyst being investment projects that were postponed due to a pandemic and are now underway, but also due to the Fund. Recovery.

For 2022, the four systemic banks aim at net financing of the real economy by 10 billion euros, in addition to loans within the Recovery Fund. Of the 10 billion euros, 60% relates to retail banking (housing, consumer, small and micro enterprises) and 40% to business credit (large and medium-sized enterprises).