The 4 conditions for loans to more businesses

By Leonidas Stergiou

The systematic counting of the so-called “bankable” businesses begins, i.e. those that meet the banking criteria and those that are “cut off” by the banks or do not dare to proceed with an application as they believe that they have no chance of their application being approved.

The first step is the creation of a new platform by the Hellenic Development Bank, which is already operating on a pilot basis. On this platform, all businesses from any part of the territory will be able to submit their files and applications for co-financed programs. After the first eligibility check will be done based on basic criteria by the platform itself (eg existence of balance sheet, etc.), then the application will be visible to receive funding proposals from the entire banking system. That is, the reverse course that applies today will be followed. First the company submits information and an application to the bank and if it is deemed eligible then the application is forwarded to the Hellenic Development Bank. The same applies to other co-financed programs, even to the Recovery Fund. This reverse course will help the State to identify the number of businesses that are rejected by the banking system and the reasons for rejection, explained Mrs. Athina Hatzipetrou, president of the Hellenic Development Bank. At the same time, he explained, that the application of a business in common view of the entire banking system will help competition and the identification of new bankable businesses. Hellenic Bank will then gather these data, so that they can be used by the relevant ministries and authorities to create intervention tools, in order to increase bankable businesses or reduce the so-called “market failure”, i.e. where the banking market fails .

The governor of the Bank of Greece, Mr. Giannis Stournaras, also referred to the market failure in his message during the presentation of the results and new programs of the Hellenic Development Bank, requesting the continuation of upgrading its role, to the standards of the major development banks.

However, from the data already available from banks, Teiresia, AADE, Bank of Greece, it appears that the number of bankable businesses is already small and is estimated at around 50,000 or at best 100,000. Even the reasons are known. And the symptom of the problem can be seen from the containment of interest rates on loans and the reduction of the margin on business loans, according to the results announced by the banks for the first half and based on the aggregated data of the Bank of Greece, in an environment of rising interest rates. This shows the great competition among banks to gain shares in an already small pie.

The conditions

According to Bank of Greece sources who reflect the views of its management, in order to increase the number of bankable businesses in Greece, you should:

First, there should be an effective consolidation of the sustainable ones, with more effective management of the pledge (collaterals), making use of the tool of refinancing for sustainable arrangements, as the Governor of the Bank of Greece has mentioned several times in his speeches, even in the association of management companies, but also in his exhibitions.

Secondly, unsustainable businesses under all alternative assumptions about their future income and expenditure must be brought into liquidation, with the social policy framework acting where necessary.

Thirdly, to have greater transparency in their balance sheets. As was also mentioned in the presentation of the Hellenic Development Bank, with the presence of the Minister of Development, Mr. Adonis Georgiadis, the Deputy of Development Mr. Yiannis Tsakiris and the president of the Piraeus Chamber of Commerce and Industry Mr. Vassilis Korkidis, it is not possible for the banking system to know the financial situation of a company if, for example, it does not show all the revenues or if it makes moves to improve its balance sheet or if he doesn’t even have tax or insurance knowledge, as the president of the Hellenic Banking Union, Mr. Vassilis Rapanos, had revealed in his speech to the Parliament, when he referred to the reasons why banks reject financing.

fourth, to have tools to intervene in cases of market failure.

ECB-Martin Bysterbos

According to ECB and Bank of Greece, the reduction of non-performing loans (NPLs) on banks’ balance sheets was mainly achieved through securitization and transfers to investment funds, the level of NPLs still exists in terms of the real economy and puts a large number of debtors out of business financing from the banking system.

The head of the ECB team for Greece, Martin Baisterbos, made the same clear in an interview with capital.gr on Monday. As he said, “The reduction of NPLs on banks’ balance sheets is a very big achievement, but the problem of bad loans in the private sector has not yet been overcome. A large part of this non-financial private sector debt remains ‘problematic’ as about 100 billion in non-performing debt (about 55% of GDP) still sits on the books of private borrowers.Most of this debt is managed by loan management companies rather than the banks themselves, but there are signs that collection of these loans remains a challenge as hurdles remain to resolve them. This debt burden is indeed creating difficulties for the real economy as well. Unrestructured bad loans, even if they are no longer in the banking system, are a brake on the economic activity, as they still have to be serviced by the borrowers.P they also complicate access to bank financing for these borrowers, who are at risk of being trapped in this situation.”

Business model

Recent studies on the approximation of the number of small and medium enterprises in Greece, such as by the European Commission and the National Bank, converge to the conclusion that almost 80% of small and medium enterprises correspond to individual businesses and freelancers. For this approach, National Bank in its analysis defined small businesses as those with a turnover of less than 1 million euros and medium ones with an annual turnover of 1-10 million. The analysis shows that the 20% corresponding to small and medium-sized companies covers 156,000 units, out of a total of 780,000. Of the 156,000 companies, 148,000 are small and the remaining 8,000 are medium.

According to Eurobank’s approach, the number of potential bankable businesses in Greece is estimated at around 100,000. This number emerged during the presentation of the Eurobank 2030 strategic plan by the Bank’s managing director, Mr. Fokionas Karavias. According to Eurobank estimates, approximately 2,000-2,500 are the number of businesses for loans over 5 million euros, almost 18,000-20,000 for loans from 1 million to 5 million euros, while others approximately 80,000 for loans under 5 million euros.

These estimates confirm the latest study by the ECB and the Commission (SAFE), regarding the mapping of small and medium enterprises. Of the total estimated 780,000 businesses, almost 160,000 are companies and employ at least one additional person besides the owner. The rest belong to the category of individual businesses and freelancers. This category, which concerns more than 600,000 businesses, does not belong to business credit, but to private retail.

The approach of the tax office

From the AADE data for the financial year 2019, i.e. before revenues were affected by the pandemic, it appears that almost 60% of businesses had losses, while approximately 90,000 had profits of more than 10,000 euros. In particular, those with profits over 300,000 euros were just 59,000 businesses.

These data seem to converge with the assessments of the banks which have been highlighted several times in the discussions with the Ministry of Finance and the Bank of Greece, even in the Parliament, on the subject of liquidity, bank financing, access of small and medium enterprises to bank financing and for the goal of increasing bankable businesses to at least 100,000.

In all these discussions that had started since the beginning of 2021 with a view to financing through the Recovery Fund, there had been talk of the existence of approximately 850,000 small and medium-sized enterprises, of which 40,000-50,000 met the bankable criteria. And these belonged to large and small and medium enterprises.

Banking criteria

Based on the data submitted by the president of the Hellenic Banking Union (EET), Mr. Vassilis Rapanos, to the Parliament in a related debate on bank financing towards the end of 2021, the main reasons for rejection are the following:

*60.5%: low credit rating. From the evaluation of the customer, an unfavorable credit rating (SMEs Rating) emerges or in combination with overdue deadlines in the repayment of obligations in general, or significant unfavorable elements were identified or the existence of debts was established.

*16.1%: Unintentional investment. The proposed investment is not considered appropriate, based on the business activity of the prospective borrower.

*14.1%: No apparent possibility of repayment of the applicants. The bank’s client presents continuous loss-making financial years in combination with the absence of other sources of income (besides business activity) or is over-loaned, or its turnover is limited and prohibitive for financing, or there is information from the store regarding contraindications for the business that they do not arise in any other way.

*2%: Lack of collateral. The interested party does not offer the required debt or real collateral.

*0.4%: Deficit of own participation. The interested client of the bank does not offer the required amount of the same participation in the investment scheme.

*7%: Other reasons for rejection, such as, for example, non-eligibility for guarantee programs, non-response to a request for clarifications or supporting documents, existence of invisible bodies with contraindications, etc.