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Banks scale down on SME lending


Credit institutions are always the first ones to withhold SME lending during economic declines. SME lending rates are sort of an indicator reflecting the overall economic environment in a country. Banks immediately react to economic declines by reducing the volumes of lending to small enterprises. According to «Expert RA» rating agency research, in the 1 quarter of 2013 the deficit of long-term money caused the drawback in SME lending – the segment growth rate went down 1.2 times. With that, the delinquencies on SME loans reached 7.8% of the total loan portfolio (RUB 4.9 trillion). By the end of the year this rate is expected to increase by another 2.2%, says «Expert RA».

In the 1 quarter of 2013 the overall small business loan portfolio increased by 8.4% compared to the 10% increase for the same period in the year earlier. At the same time, the full-year 2012 portfolio growth was 15.3% vs 22.7% in 2011. Banks also «switched» from long to short term lending – they mostly prefer to lend money to small enterprises for up to 1 year. In the first half of 2013 these loans constituted 69% of all the disbursements, while same period indicator in 2012 was 56%. The share of loans maturing in over 3 years only makes 11%, and is primarily furnished by state banks.

According to SDM-Bank CEO Maxim Solntsev, in 2011–2012 major market players started shifting toward retail business, which reflected in descending key indicators:

— They realized that retail-like scoring approach is inapplicable when dealing with small enterprises. With that, it is too overwhelming to have each of the customers visited and audited on site due to a substantial customer base. This is where small and medium sized banks can take advantage of an individual approach, and therefore they strive to expand their market share.

«Expert RA» also notes this trend in its research. It says that «lending factories», which used to be the driving power of SME lending business, now «hand the baton» to relatively small institutions. Large market players have grown their loan portfolios by only 6.1%, while small and medium banks grew twice as much. This resulted in the TOP 30 market share decrease by 1.3% to 59.4%.

According to experts surveyed by «Izvestiya», the slow down in SME lending growth bears the evidence of the deteriorating economic environment in the country.

Mikhail Krylov, Head of Analytical Department in «United Traders» also notes that SME lending is in depression due to long money deficit. This is the result of economic recession, and therefore decline in import and export operations, earnings downturns, VAT shortfalls, and privatization plan disruption. In the first half of 2013 GDP growth went down by half to 1.7%.

According to research by «Sequoya Credit Consolidation» (part of Evgeny Bernshtam’s Adela Financial Retail Group), total share of bad debts transferred to collector agencies increased by over 12 times from 0.4% to 5%. Even though SME NPL growth rate has gone down by 152 times from 91.3% to 0.6% since the recession year of 2010, lately bad debts surged forward, totaling around RUB 388.6 bln in a RUB 4.3 trillion total SME loan portfolio. The referred tendency derives from the massive write-off of debts accumulated during the crisis of 2008-2010.

— Generally it takes about two year before banks can write bad debt off their balance sheet (in particular, bad debt collection impossibility certificate must be obtained prior to the write-off). 9 % of loans disbursed to small business entities in August 2013 turned non performing. By the end of the year this value may reach 12%, when some of the earlier disbursed loans also become non-performing. In 2014 this rate may increase to 15-17% due to economy stagnation both in Russia and in the rest of the world.

According to «Expert RA» forecast, SME segment NPL share in total loan portfolio will reach 10% by the end of 2013.