Tuesday, April 15 12:55:48
The shortfall in credit available from banks to European small and medium sized enterprises' (SME) will last for at least five years, according to new research from PwC.
It finds that firms will struggle to fill this gap using other existing sources of credit as they typically don't enjoy the same level of access to bond markets as their US counterparts.
There is a major opportunity for non-bank institutions to extend credit with loans falling somewhere between E10m and E50m, the report said.
Declan McDonald, Restructuring and Insolvency Partner, PwC Ireland, said the bcredit squeeze on banks shows little sign of letting up.
"Affordable access to credit has always been challenging for SMEs in Europe, but the problem is more acute than ever. Over the next few years, many SMEs are likely to find the already demanding terms of bank credit expensive and while they will increasingly wish to invest for future growth, banks remain under pressure to reduce and control their levels of leverage. So, the scale of the non-bank lending opportunity in Europe is huge, and will only grow over the next few years."
"This should be good news for Irish SMEs who traditionally have been heavily reliant on bank lending to fund their businesses and are now struggling to source investment for restructuring and growth as the economy recovers. Already we have seen significant activity in the loan sale market in Ireland and a number of new funds entering the market targeting the SME sector," added Mr McDonald.
The research report also found that demand for credit will receive an additional boost from the collapse in global markets in 2008 and that a large portion of the credit raised in 2004-2007 is due for refinance in the next two years.
Europe's securitization markets are recovering slowly in the post-crisis regulatory environment. European SME securitization only raised a total of E45bn in 2012 and just E16bn during the first three quarters of 2013.
Retail bonds are currently barely known outside Germany and Italy, and peer to peer lending and crowd-funding platforms are still gaining in their infancy in the Irish market.
Ronan Doyle, Banking Partner, PwC Ireland, added that alternative credit providers need to act now to take advantage of the considerable gap in the market.
"Now is the time for non-bank institutions to lay the groundwork for lending - by developing a strategy and strengthening their in-house capabilities. Existing non-bank lenders are also considering expanding their business through purchases of non-core loan portfolios and platforms."
"With its rich history in asset servicing and other back office work, Ireland is ideally placed to capitalise on this opportunity." Mr Doyle said.
Talking about the report today, Ronan Horgan, Managing Director, Bibby Financial services Ireland said many Irish SMEs are struggling to maintain and grow viable Irish business due to a lack of finance available from our banks who are now taking a more risk adverse approach to lending to SMEs. They cannot afford to wait a further five years for bank finance, as suggested by today's report.
"As a funding provider to the SME sector in Ireland, we are seeing positive signs of recovery in the market. According to recent Vision-net.ie figures, over 10,700 new start-ups were formed in Q1 this year. However, without credit to take on new business, met day-to-day costs and invest for the future over the next few years, these SMEs will not be in a position to benefit from new opportunities or even survive in some cases," said Mr Horgan.
"Irish SMEs and legislators need a culture change when it comes to finance. If businesses are to survive, grow and sell domestically and internationally, they need to look at alternative, non-bank sources of finance, which are available and willing to lend here."