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Roundtable: SME Growth Opportunities & How Policies and Banks Miss Them Belgrade, 07.10.2014, National Bank of Serbia.

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Presentation on theme: "Roundtable: SME Growth Opportunities & How Policies and Banks Miss Them Belgrade, 07.10.2014, National Bank of Serbia."— Presentation transcript:

1 Roundtable: SME Growth Opportunities & How Policies and Banks Miss Them Belgrade, 07.10.2014, National Bank of Serbia

2 Two project components 1st COMPONENT -Quantitative analysis of SME performance and financing -Are there missed opportunities for bank in the SME sector? 2nd COMPONENT -Analysis of internal bank sales and risk management processes -How can banks internally improve their approaches to SMEs? RAISING THE VOLUME OF COMMERCIAL BANK LENDING TO SUSTAINABLE, GROWING SMEs

3 1ST COMPONENT No. Successful Companies Total No. of Companies % Successful Micro14,69054,99126.7 Small5,58017,41132.0 Medium6882,72025.3 Large14177918.1 Total21,09975,90127.8 Small Economy – Big Opportunity Source: SBRA (CEVES analysis) Main obstacle to growth – lack of financial resources 60% of small companies finance themselves exclusively with retained earnings Only 33% of companies currently use bank credit. Only 27% of companies view bank credit as a significant source of financing Companies that use bank credits (%) Serbia is ranked 121st in terms of ease of access to finance (WEF) Data Source USAID BEP Survey SBRA CEVES Survey* Entrepreneur 222333 Micro 312432 Small 445152 Medium 556960 Total363135

4 A.TEXT HERE!! Text here Text here Text A.TEXT HERE!! Text here Text here Text 1ST COMPONENT Among micro, small, and medium-sized companies… 55% do not use bank financing 65% wish to continue growing, investing, and innovating 80% are able to take on additional debt 80% of companies not using bank credit do not want to under current conditions Direct missed opportunities for banks Every fourth successful company ≈ 5,000 SMEs

5 1ST COMPONENT Source: SBRA (CEVES analysis) …Aside from missed opportunities, the performance of SMEs that are financed by banks points to a problem in attracting and selecting clients SMEs financed by banks are, on average, more successful but not to the extent one may expect The concentration of successful companies, their profitability, and their productivity are only slightly higher among those financed by banks (5.5pp higher than those not financed by banks) Companies not using bank credit Companies using bank credit Size% Successful Micro 24.530.8 Small 30.334.4 Medium 23.426.7 SMEs 26.131.6

6 1.2. 3.4. 2ND COMPONENT -Analysis of bank practices relating to SME financing and risk assessment -Interviews with directors of sales and risk departments of 11 banks (that account for 70% of the commercial banking market) -77 question survey intended for managers of SME departments (sales) and a 53 question survey for directors of risk departments (risk management) One stop shop -Banks branches do not offer all services expected by SMEs. -One stop shop: receiving advice; support in completing credit applications; help with business plans and risk assessment; availability of all bank products. Business centers -Lack of specialized staff. -Business centers: sales teams, internal risk assessment and management units. Relationship lending -Lack of systematic use of qualitative client information -Greater weight for qualtitative factors when determining credit conditions. Custom made products -Highly standardized products -Custom made products: repayment period adjusted to business cycle, product appropriately tailored for its purpose, etc.

7 2ND COMPONENT 5.6.7. Sub-segmentation of SME Market -Main criterion for segmentation is yearly turnover -Sub-segmentation: personal characteristics of founder/management; characteristics of the company; activity of the company; type of support, etc. Economic and sector analysis -Insufficient use of economic and sector data in client acquisition and risk assessment. -Potential solution: joint research center or research department within banks. Detailed SME portfolio analysis -Lack of expertise/knowledge. -It is necessary to analyze the characteristics of SMEs that most often default or are late and conservative approach of successful SMEs

8 SME EDUCATION INCREASING DEMAND RESOLVING REPAYMENT PROBLEMS POSSIBLE NEXT STEPS -Resolving SME financial illiteracy -Precondition: insight into a representative sample of rejected SME credit applications -Result: (i) summary and analysis of most significant and common mistakes and (ii) educational workshops -Resolving the question of problematic loans and improving credit analysis -Precondition: collaboration with the NBS or SAB -Result: (i) creation of profile of SME with non- performing loan (ii) evaluation of quantitative vs qualitative parameters for creating a better credit portfolio. - Resolving “lack of need” of successful SMEs for financing - Precondition: none - Result: (i) understanding the motive(s) for founding an SME; (ii) identifying the reasons why SMEs do not take credit from banks; (iii) identifying correlation between owner motivation for founding SME and propensity to take debt; and (iv) uncovering the conditions under which an SME without credit.

9 THANK YOU! Tel: 011/ 405-27-80

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