Rising rates and economic uncertainty cause companies’ demand for bank loans to fall


The granting of bank loans to small and medium-sized companies (SMEs) has slowed down its growth, and despite the strong accumulated inflation, in the second quarter it only grew by 5.4%, up to 41.4 billion euros, which represents the lowest increase recorded since June 2021, as shown by the ‘SME Financing Report’ prepared by the Cepyme research service.

The SME employers’ association indicates that, correcting the effects of inflation, the volume of new loans granted was 9% lower than in the same period of 2019.

Therefore, it explains that the lower liquidity in circulation that is now in the market translates into a lower volume of credit to which the SME has access. So new loans are now equivalent to 12.7% of GDP, compared to 14% in 2019 and 15% in the pre-pandemic five years.

In inflation-adjusted terms, the average size of loans to small businesses increased 2.5% year-on-year, but that of medium-sized firms fell 5.1%.

Cepyme attributes this situation to the economic context, in which the new monetary policy of the European Central Bank (ECB) has maintained an escalation in interest rates that has slowed down the demand for credit by SMEs, added to a worsening of their balance sheets, which increases the required guarantees.

Specifically, the employers’ association indicates in its report that small and medium-sized companies face a restriction and tightening of credit conditions and recalls that since the pandemic, SMEs have suffered wear and tear that has significantly deteriorated their balance sheets, making it difficult not only access the lowest existing credit, but also have the ability to present the guarantees required for a loan to be granted.

The report highlights that, in the months of the pandemic, the SME assumed only 130,000 million euros from ICO lines destined for fixed expenses and not for investment.

Furthermore, he points out that the inflationary crisis has once again reduced company margins: on the one hand, costs have increased by 19% in the last year (according to data from the second quarter of the ‘Indicator on the Situation of SMEs’) , while sales grow “oversized” due to the effect of inflation.

This raises the billing figures, however, in terms of the number of goods sold, sales barely grew by 0.9% in the last year, corrected for the effects of inflation.

Cepyme adds in the report that the complex situation that SMEs are going through causes them to demand less credit: credit demand has decreased in the last three quarters, falling in four of the last six quarters.

This is ultimately reflected in the fact that uncertainty and increased costs paralyze companies’ investment decisions and therefore their demand for credit.

In fact, among the causes that Cepyme has detected to explain the drop in financing requirements are mainly lower investment, the rise in interest rates and the fact that loan renegotiations have been brought forward to previous quarters.

The lower demand is combined with the fact that the proportion of rejected loan applications increases and accumulates five quarters of increases, in line with a tightening of the granting criteria for six quarters, due to the lower liquidity in the market and a lower tolerance to risk, the report states.

It also highlights the information published in the ECB’s Bank Loan Survey, which indicates that the worse general economic situation and the uncertainty of the situation in many sectors specifically are evolving adversely for concessions.

On the other hand, Cepyme indicates that the typology of loans to SMEs has evolved. Firstly, its cost weighs down demand and the containment of bank financing coincides with a sharp increase in financing costs.

In this sense, the average interest on new loans to SMEs rose to 4.36% in the second quarter of this year, its highest value since 2008. Also, the increase in prices has been the most intense since 2000, rising 292 basis points in just one year.

However, the report highlights that interest rates for new loans are lower than the eurozone average, and also lower than those of Germany, Italy and Portugal.

It also points out that the average term of new loans tends to shorten and that there have been four consecutive quarters in which the average term of new loans is less than 11 months, something that has not happened since March 2012.

Regarding the size of the average loan, this is significantly lower than that received in the second quarter of 2019, with a decrease of 7.5% in small companies and 16.1% in medium-sized companies, in terms corrected for the variation of the CPI.

Finally, the Cepyme report indicates that among the direct consequences of lower access to credit by small and medium-sized companies, in the midst of a hostile situation like the current one with inflation, interest rates and uncertainty; It is a burden on your investment, the development of your projects, and therefore, the objective of gaining its size, as well as the possibilities of relaunching its productivity.