Credit demand from SMEs collapses in the second half of the year

The Bank of Spain has advanced in its last quarterly report on the Spanish economy that the Gross Domestic Product could contract again in the last three months of the year, as a result of the “tightening of the measures to contain the pandemic” launched by the central government and regional governments. The main concern of Spanish SMEs has gone from being financing to being the lack of clients. And if it is not sold, why are you going to ask for a loan?

The latest data on new credit granting operations by financial institutions only ratify the premonitions of the survey. In the first ten months of the year, the banks granted loans for less than 250,000 euros, the most demanded by small and medium-sized companies, for a total of 103,784 million euros. This figure is 6.72% lower than that granted during the same period of 2019. But if it is limited to the June-October period, the collapse reaches 24%.

The survey carried out last month by the European Central Bank collects the perceptions of companies in the short and medium term and these indicate that the lack of sales is today, without any doubt, the main problem of small and medium-sized Spanish and European companies. One in four companies is obsessed with reduced sales. This percentage is well above concerns about labor costs, regulation, the availability of qualified personnel, competition or access to finance.

According to the ECB, the number of companies that reported an increase in sales in the second and third quarters was significantly lower than those that answered the opposite, making the difference between both percentages (55 points) the most negative record since the first half of 2009.

The different stages that the pandemic has gone through throughout 2020 have been reflected in the activity of Spanish companies. Thus, in the first five months of the year, bank financing flowed to non-financial corporations in order to guarantee the sector’s liquidity needs. The granting of credits for amounts less than 250,000 euros increased by 10.8% between January and May and that of credits of more than one million euros, 49%.

Avoid a liquidity collapse

The battery of measures launched by the European Central Bank for the central banks of the member countries to finance the needs of companies and governments multiplied ICO lines, state guarantees and met the objective of preventing a liquidity collapse from paralyzing all economic activities.

But that excess liquidity was noted when the Government raised the state of alarm and normality seemed to settle in among the population. Between June and October, the granting of loans below 250,000 euros has gone from 55,803 million in those same five months of 2019, to 42,236 million this year. They are 13,477 million less and a sharp drop of 24%. Only in the month of October, the last month for which there is complete data, the drop was 31.7%.

It is not an exclusive case of the financing of small and medium enterprises. In the segment of loans of more than one million euros, the decrease is 19.1%, from 72,458 million to 58,628 million. The change in sign is very important, considering that in the first five months of 2020, banks had granted 95,053 million in loans, 49.4% more.

It is more than likely that, due to the lack of purpose for SMEs to apply for a loan under the current conditions of citizen mobility, there has been a greater control by financial institutions over the situation of borrowers at all times. According to the Survey on Bank Loans (EPB), the approval criteria would have tightened in the third quarter of the year, “as a consequence of the increase in perceived risks”. According to the Bank of Spain, companies anticipate “a strong tightening in access to bank financing in the coming months”.

The data published on Tuesday by the Bank of Spain clearly shows the trend: total credit granted to finance productive activities decreased by 10,500 million in the third quarter of the year compared to the previous period, and that granted to the services sector, by 8,841 million. In one of the sectors most affected by the pandemic, the hospitality industry, the amount of doubtful loans has increased by 221 million since the beginning of the year, 14.2%. At the moment, it is only a symptom.

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