The debt crisis of the previous decade continues to hamper credit expansion, preventing strong growth in bank activity and Greek entrepreneurship.
The high volume of bad loans is still a concern for local lenders, while the low degree of Greek business transformation (with persistently low productivity and extensive fragmentation) and the inherent factors preventing the spreading of business risk via venture capital entities are the main reasons for the slow expansion of credit in the market, despite the general view that the necessary liquidity is available.
The problem is located in the financing of small and very small enterprises, which according to statistics amount to 400,000 out of a total 800,000 registered companies. Given that the number of solvent enterprises comes to no more than 100,000, according to bank data, the funding gap appears to affect 300,000 enterprises that don’t have bank credit, either because they do not reach out to the lenders or because the funding tap remains closed for them.
Data presented at a Finance Ministry meeting last week showed 60% of loan application rejections are due to enterprises’ low credit rating; this mainly concerns small and very small companies that either have negative data recorded on the Teiresias register of borrowing companies, or have debts to banks and/or the state. The question is how all those businesses can extract themselves from the blacklist and regain access to bank funding.
According to bank data, 14% of applications are rejected either due to having years of financial losses or their turnover does not justify the amount of funding requested; another 16% of applicant companies are turned down because their business plans are deemed unsustainable – which highlights the increased need for consulting support banks will have to develop in order to assist enterprises turn their business ideas into sustainable financing proposals.
The need to support SMEs also stems from Bank of Greece statistics on bank credit, which reveal the dominance of larger companies in credit issued. The figures included in the European Central Bank’s AnaCredit database concerning loans in excess of 25,000 euros show that just 680 large enterprises account for about a third of bank credit in Greece.