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Less lending and service from banks?

Heim Gedanken Less lending and service from banks?

SMEs lending services missing from banks but advisers can arrange

Banks reduce SMEs lending services. What is happening?

  • Len­ding to non-finan­ci­al cor­po­ra­ti­ons in Euro­pe is decli­ning sin­ce years while much funds are idle and cen­tral banks’ inte­rests low. Banks redu­ce SMEs len­ding ser­vices espe­ci­al­ly in the stres­sed Euro peri­phe­ry with consequences.

  • Qui­te some banks are suf­fe­ring for ear­lier errors of len­ding, which in hind­sight has pro­ved incon­s­i­de­ra­te. Banks equi­ty and Total Loss-Absor­­bing Capa­ci­ty has often fal­len below the level nee­ded to absorb poten­ti­al los­ses on exis­ting assets. This makes it pro­hi­bi­ti­ve to extend addi­tio­nal loans. Regu­la­ti­ons con­se­quent­ly beco­me stric­ter and more com­pli­ca­ted. Risk awa­re­ness of bank offi­cers and use of risk manage­ment tools increa­sed. SME len­ding doesn’t look as that an attrac­tive allo­ca­ti­on wit­hin their new risk appe­ti­te, port­fo­lio stra­te­gy, and com­mer­ci­al policies.
  • Consequence

  • This has ope­ned oppor­tu­nities for new ent­rants in the mar­ket. Crowd­fun­ding, tra­di­tio­nal and alter­na­ti­ve debt pro­vi­ders, payment ser­vices, bro­kers and all kind of Fin­tech plat­forms are gro­wing. Such alter­na­ti­ves are eating away more reve­nues of banks on pro­ducts like for­eign exchan­ge tran­sac­tions or stock­bro­king, whe­re mar­gins were just huge.
    Arti­fi­ci­al Intel­li­gence opens fur­t­her oppor­tu­nities for boo­m­ing Fin­tech even on tasks such as rela­ti­ons­hip, port­fo­lio manage­ment and SMEs len­ding ser­vices. Banks thus will trans­form them­sel­ves even fart­her towards the­se new lower-cost com­pe­ti­tors or try to inte­gra­te them. An issue with this deve­lop­ment is that such chan­ges requi­re cli­ents’ know­ledge to shop for each pie­ce individually.
  • Outlook

  • Regu­la­ti­on will play an important part in how banks might keep their pri­ma­ry role in money crea­ti­on. In addi­ti­on to taking pre-exis­­­ting depo­sits of savers, banks lend to bor­ro­wers. This crea­tes depo­sits of new money wit­hin ratio­na­le limi­ta­ti­ons of pro­fi­ta­bi­li­ty, sol­vency and cen­tral banks reser­ves. Bank len­ding with money crea­ti­on might by design remain more effec­tive than the mere inter­me­dia­ti­on of loan­ab­le funds of most alter­na­ti­ve len­ders. But banks must iden­ti­fy and finan­ce worthwhile pro­jects . Worthwhile means in this case that their aggre­ga­te resi­du­al risk of non-repayment is wit­hin equity’s capa­ci­ty to cover and pro­pen­si­ty to risk such los­ses.
    Finan­ci­al reporting stan­dards such as IFRS 9 might have qui­te an influ­ence too on future loan port­fo­li­os and pri­cing.  They will con­si­der in more detail sec­tor, dura­ti­on, col­la­te­ral and rating.
  • Consequences

  • Finan­ci­al pro­ducts and ser­vices are beco­m­ing che­a­per and mar­gins dwind­le. Low inte­rest levels also moti­va­te well infor­med or advi­sed custo­mers to act. They drop often over­pri­ced pro­ducts such as cus­to­dy, FX or most­ly under-per­­for­­ming active asset manage­ment for che­a­per solu­ti­ons or mana­ge their assets and tran­sac­tions them­sel­ves. Banks thus have to cut ope­ra­ting costs and increa­se effi­ci­en­cy of rela­ti­ons­hip manage­ment, redu­cing also SMEs len­ding ser­vices. Full ser­vice is restric­ted to few cli­ents and focus put on attrac­tive loo­king pro­ducts. It is easy to sha­re many ana­lysts’ con­sen­sus of a lar­ge public com­pa­ny. And so is to extend a mortga­ge with low capi­tal requi­re­ments, until a pro­per­ty bub­b­le bursts. Even just buy­ing not real­ly risk-free sover­eign debt, ent­ails less risk of bla­me than ade­qua­te­ly ana­ly­se and assu­me risk of a startup.

What can I do?