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Latest report on SMEs: surprising improvements but recovery remains fragile

Latest report on SMEs: surprising improvements but recovery remains fragile

​Source: UEAPME, 2017

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Savings, retail banks committed to 'real' economy ​bank financing​


BRUSSELS, 24 October 2017 – Small and medium sized enterprises have reported significant improvements in their business activities, shows the latest EU Craft and SME Barometer. The report published by the European SME umbrella organisation UEAPME also reveals the highest SME Climate Index score recorded since the outbreak of the global financial crisis.

Big improvements, but uncertainties remain

According to Ulrike Rabmer-Koller, President of UEAPME, results in SMEs sector are better than expected and there are various factors that have contributed to such improvements. Relatively stable core inflation, declining unemployment rate and rising wages are named as the main aspects that made a positive impact. “These factors have contributed to an improvement of European consumers' purchasing power and therefore shores up internal demand that most SMEs rely on", says Ms Rabmer-Koller.

Despite positive results UEAPME representatives note that recovery is still fragile and uncertainty over Brexit raises concerns and diminishes SMEs' expectations in the UK and countries with close economic ties to it. Results also show that north-south divide continues to exist despite the increase of confidence in all regions.

Why it is important the economy, local banks

Small and medium-sized enterprises contribute significantly to the European economy and are often called its backbone. SMEs play a major role in jobs creation and employ two-thirds of the private-sector workforce. Despite their success and growth there are many challenges that SMEs face. According to a joint European Commission and European Central Bank survey, regulatory issues and access to funding are often among the most frequent business barriers owners of SMEs encounter.

New forms of SME financing are taking root – such as venture capital, crowdfunding, b2b marketplaces, business analytics supported analysis, robo-advisory – to name only a few. ESBG has always argued, however, that bank financing is – and should remain – the most sought-after source of finance by SMEs in Europe. 

ESBG member banks: Half a trillion euros in loans

The 1000 savings and retail banks that are represented by ESBG have a big stake in financing real economy businesses. They have €​500 billion in SME loans on their books in the European Union, equal to roughly a thrid of the market. In Spain, ESBG members have more than half the marketshare. In Germany, savings banks there serve 40 per cent of the market while in Sweden, a quarter of SMEs work with member Swedbank.

Strengthening banks’ ability to lend will help the EU economy grow

Bank lending represents the core source of financing during the start and expansion of a small and medium sized business. Enabling small and medium-sized retail banks in Europe, which account for 99 per cent of businesses, savings and retail banks have a special role to play by working with and helping SMEs during all stages of their development – from creation to scale up to maturity. 

Capital Markets Union and bank lending 

Bank financing is the most natural and simplest way for firms to access the funds for their financing needs and it gives SMEs easy access to funding and at low cost. Savings and retail bankers are the ideal financing partners of SMEs due to their capacity to transform deposits into loans within a risk-controlled framework.​ Since the launch of the Capital Markets Union by the European Commission, focus has been drawn to how best to boost SMEs’ access to capital markets finance to offset the post-crisis drop in bank lending. Retail and savings banks view the role of capital markets differently, however, seeing them as a complement to bank lending – not a substitute. For plenty of good reasons, loans from a local bank is by far the most preferred source of external finance of SMEs. Beyond capital markets, risk treatment of SMEs’ exposures, synthetic securitisation and guarantee schemes are important areas to expand the SME financing toolbox. Policy can help by taking into account savings and retail banks’ specific nature, which are vastly less complex and committed to SMEs clients. The U.S. Census Bureau 2012 Survey of Business Owners shows that SMEs have a healthy appetite for debt financing through banks in the United States for business creation and expansion. This mirrors SME demand figures for bank financing in the European Union.


>>More ESBG positions on SMEs



SME finance; Regulation; Capital Markets Union