Hunt for borrowers

Banks are increasingly turning to small and mid-sized enterprises as their main client target group, as the cost of credit is rising and threatens to restrict consumer loans. Although credit expansion in Greece is still strong enough to worry the central bank, the recent interest rate rises by the European Central Bank is expected to pose difficulties for individual customers in repaying their loans. As Bank of Greece Governor Nicholas Garganas remarked recently, too many individuals were lured by the low rates in floating-rate loans and will now be in a difficult situation as monthly installments go up. Banks have by and large refrained from raising their loan rates, with some advertising the fact that they have raised deposit rates. However, they are aware that the high growth rate in consumer loans cannot be sustained for much longer, while there are also questions about the housing market’s expansion. Small and medium-sized enterprises, some 800,000 of them, account for nearly 90 percent of Greece’s economic activity and, until now, have not been sufficiently tapped by banks, because the latter were too focused on consumer loans and their higher interest rates. The six largest banks – National, Alpha, EFG Eurobank, Piraeus, Emporiki and ATEbank – and several smaller ones are now preparing new products for small and mid-sized enterprises. This is the reason, analysts believe, that they have not announced their new loan rates yet. Smaller banks such as Geniki, Nova Bank, Attica Bank, Cyprus Bank and others are actually ahead of their larger competitors in devising loan products for enterprises and professionals. Still, financing small-business men has its risks. The fact that they have not yet been overburdened with loans cannot hide another risk – that of bounced checks – most of which come from precisely such businesses. Bounced checks reached a high of 1 billion euros in 2005 and suppliers are continuously extending their grace period toward small enterprises. In several cases, it takes up to 12 months for a supplier to be paid by a buyer. Another indicator of trouble is that 60 percent of bank loans to small and mid-sized enterprises concern working capital, meaning that businesses borrow just to achieve adequate liquidity.