Market Gaps on Access to Finance - Bank of Valletta

Malta Business Bureau – <strong>Market</strong> gaps in access to finance
April 2013
2.2 Why access to finance
Various European and national reports have shown that to sustain the contribution provided by
SMEs to the European and Maltese economies, these SMEs need to be assisted in achieving their
growth potential. At the same time SMEs are known to often face significant difficulties in meeting
their financing needs 6 . The EU has set the facilitation of access to finance for SMEs as one of its key
priorities in its Europe 2020 vision, the EU's growth strategy for the coming decade.
According to the European Central Bank (ECB)’s 2012 survey on Access to Finance of small and
medium-sized enterprises in the euro area (SAFE), “Access to finance” was a key concern for a large
number of euro area SMEs (18%), and was only second to “finding customers” as the dominant
concern for euro area SMEs (27% of SMEs mentioned this as their most pressing business problem).
Other areas such as “Competition” and “Availability of skilled staff or experienced managers” were
mentioned somewhat less frequently (11% and 13%, respectively). Younger firms also claimed to
have bigger access to finance issues than their larger and more established counterparts 7 .
On the other hand, the 2012 SAFE Malta report shows that access to finance is only a concern for
4.6% of respondents 8 . Additionally, over 50% of Maltese respondents claimed that their largest
source (by usage) of financing were the ‘traditional’ bank sources of financing, primarily bank
overdraft, credit line or credit cards overdraft and bank loans 9 . Financing instruments were
generally deemed ‘irrelevant’ to local SME business needs.
Malta based respondents to an additional survey on access to finance carried out by the General
Retailers and Traders Union (GRTU) in January 2012 ranked access to finance as their fifth most
pressing problem facing them. When asked to identify the sources of finance for any planned capital
investment, most referred to use of own funds (including internal profits) and bank financing. Most
were also satisfied with the external financing being used, and were aware of schemes that help
finance investments through loans at lower collateral and guarantees, even though only 20%
actually made use of such schemes 10 .
of using Eurostat data is that the statistics from different countries have been harmonised and are comparable across
countries. The disadvantage is that for some countries these data may be different from data published by national
authorities.
6
SMEs are a riskier sector than larger corporate, as the profitability ratio, activity ratio and ability to pay interest expenses
are generally higher in larger corporations. Data available at the European Banking Authority also show that the probability
of default is on average 55% higher for the SME retail portfolio than in the corporate one and 72% higher than in the entire
asset class. On the other hand, data from the ECB Bank Lending Survey show that lending constraints are shared by both
large and smaller firms, but since 2007 the tightening of lending standards has been stronger for smaller firms than large
firms (European Banking Authority (2012), Assessment of SME proposals for CRD IV/CRR).
7
European Central Bank (2012), Survey on the access to finance of small and medium-sized enterprises in the euro area –
April to September 2012. This survey also shows that the economic and financial situations related to the ongoing (2012)
crisis are more likely to hit younger firms: SMEs up to 5 years old mentioned “Finding customers” and “Access to finance”
similarly often as their most pressing problem. For large firms, “Access to finance” (mentioned by 14%) was less of an issue,
while “Finding customers” (22%) and “Competition” and “Cost of production or labour” (16%) were their dominant concerns.
8
European Central Bank (2012), SAFE tables – 2011 (Excel file). In a Eurobarometer survey carried out in 2009, 8% of
Maltese respondents said that access to finance was their most pressing problem. The EU27 average in this survey was 16%
(European Commission (2009), Eurobarometer: Access to finance – analytical report).
9
In the above Eurobarometer survey, Malta registered the highest response in relation to bank loans as the most preferred
external financing to realise growth ambitions (86% vs. 64% for EU27) (Ibid).
10
GRTU (2012), Access to finance. In a 2008 survey carried out through a joint collaboration between BOV and GRTU
among a number of GRTU members, only 57% of SMEs surveyed said they had sufficient financing to see their projects
through. 78% of those interviewed made use of overdrafts as their predominant type of financing (compared to the EU15
average of 49%; Times of Malta (2008), Banks geared to serve SMEs better).
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