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Bank lending will remain the main pillar of SME finance

Bank lending will remain the main pillar of SME finance

​Craft and SME association's Gerhard Huemer, discusses the two main challenges to help unleash greater SME financing

​BRUSSELS, 15 June 2016 – There is no doubt that capital markets within the European Union are heavily underdeveloped and very fragmented along national borders. Without a true single market for capital, the European Single Market is not complete.  As a consequence the European Commission tries to improve capital markets within the European Union with the aim to create a Capital Market Union. UEAPME, the European Association of Crafts and SMEs, which represents about 12 million small and medium-sized enterprises at European level, welcomes the Capital Market Action Plan and supports the main objectives of this policy programme.

However, UEAPME does not see more advanced capital markets in Europe as a compensation for restrictions or deficits in the area of bank lending. Even if more developed capital markets will improve access to finance for some specific groups of SMEs, such as high-tech start-ups and fast growing companies, policy makers have to be aware that the overwhelming majority of SMEs will stay dependent on debt financing by banks when it comes to external finance.

Two main challenges

Against this background, UEAPME sees two main challenges at European level to improve access to bank lending for SMEs:

First, the EU has to improve the regulatory environment for banks, especially for those which play an important role in financing SMEs and micro enterprises.

Second, the existing EU Financial Instruments have to be better used and need to focus on the most important needs of SMEs, which are: financing of investments, innovation and the start-up of new businesses.

Challenge 1: regulatory environment

As regards the regulatory environment for banks, the European Union needs to rethink its decision to apply the rules on capital requirements defined by the Basel Committee to all banks; particularly in view of the fact that these rules were initially designed for few, very large international banks. For small decentralized banks, which play the most important role for SME finance, this resulted in over burdensome regulations, and it created additional pressure for further concentration in the banking sector. Furthermore, the current banking regulations are an entrance barrier for new market participants, especially in those countries where the banking market is dominated by few large commercial banks.

Therefore, UEAPME pushes for (1) a more proportionate regulatory regime for small decentralised banks. These banks should not have to apply those rules from Basel III that were not designed for them. (2) UEAPME sees the need for a specific legal framework (i.e. a Small Bank Box) for (new) small local banks like credit unions or (new) co-operatives, which run specifically limited business models and do not create any systematic risks for the financial market. In addition, UEAPME defends the existing SME Supporting Factor and asks for a wider application of it. It further supports the proposal for high quality securitisation. These two tools can improve the capacity of banks to lend to SMEs.


Challenge 2: Financial instrument for SMEs

As regards Financial Instruments target to SMEs, we invite all intermediaries at European, national and regional level to make better use of the additional possibilities offered by the European Structural and Investment Funds to help SMEs in financing investments, innovation and start-ups. Those SMEs need financial instruments with a longer maturity and a higher risk-taking capacity.

Finally, UEAPME appreciates the big success of the SME pillar within the European Fund for Strategic Investments. However, the programme is currently running out of resources. Therefore, UEAPME advocates the rethinking of the distribution of European budgets, when the Multiannual Financial Framework is reviewed.



About the Author: Gerhard Huemer

Director for Economic and Fiscal Policy, European Association of Craft, Small and Medium-sized Enterprises (UEAPME)

​As director for economic and fiscal policy at UEAPME, his main dossiers are economic policy coordination, macroeconomic dialogue, monetary policy and tax policy as well as SME finance, R&D and Innovation and state aid. Mr. Huemer is also responsible for the UEAPME Study Unit and association press office. Before joining UEAPME, Gerhard was executive secretary of the "Economic and Social Council" of the Austrian Social Partners. He holds a diploma in economics and began his career working in the economic policy department at the Austrian Economic Chamber.

SME finance; Capital Markets Union