EBA欧洲银行-R-Ayadi-State-aid-to-banks-and-credit-for-SME27s.-Is-there-a-need-for-conditionality-Presentation_26页_951kb

Summary of "State Aid to Banks and Credit for SMEs: Is There a Need for Conditionality?"

Core Content

This document explores whether and how conditionality can be effectively used in State aid decisions to support lending to Small and Medium Enterprises (SMEs) in the European Union (EU). It analyzes the importance of SMEs to the EU economy, the challenges they face, the role of banks in providing financing, and the impact of State aid on SME credit availability.

Key Information

Importance of SMEs in the EU Economy

• SMEs constitute over 20 million enterprises in the EU, employing 80 million people and contributing EUR 2.4 trillion to the economy.
• They account for 99.8% of all enterprises, 55.6% of turnover, 58.5% of value added, and 66.6% of employment in the EU.
• Micro-enterprises dominate the SME sector, representing 92.4% of all SMEs.

Main Obstacles for SMEs

• Access to finance is the most pressing issue, particularly in countries like Cyprus, Greece, Spain, Croatia, Slovenia, Italy, Ireland, and Portugal (2013).
• Other challenges include competition, production costs, skilled staff, and regulation.

SMEs Funding Sources

• Banks are the primary source of external funding for SMEs.
• In 2013, 58.5% of SMEs had access to bank financing, while 44.4% of large enterprises did.

EU Banking Sector Overview

• The size of the EU banking sector is over 300% of EU GDP, but it has declined by 20% of GDP since the 2008 financial crisis.
• Tangible equity of EU banks increased by 40% from 3.4% to 4.8% between 2008 and 2012, except in Greece, Finland, Cyprus, and Spain.

State Aid and Its Forms

• State aid to banks includes recapitalisation, asset relief, liability guarantees, and other liquidity measures.
• Total committed aid in the EU was EUR 5,085.9 billion (39.34% of EU 2012 GDP), with EUR 1,497.8 billion effectively used (12.25%).

Main Views and Findings

Legal Justification for Conditionality

• Lending to SMEs can be legally justified as a condition for State aid without changes to current State aid legislation.
• The European Commission has discretion under Article 107(3)(b) TFEU to approve SME lending targets to prevent a "credit crunch" and support the real economy.

Economic Justification and Methodology

• A two-staged methodology was used to assess the impact of State aid conditionality on SME lending:
  1. Quantitative analysis of 444 observations on 111 large banking groups from 21 EU Member States (2006–2012).
  2. Qualitative assessment of 46 cases across EU countries.

Quantitative Analysis Findings

• Loan growth of aided banks is significantly lower than of non-aided banks.
• Nationalised banks have relatively lower loan growth.
• Liquidation has the largest negative impact on loan growth.
• General lending targets have no significant impact, while SME-specific lending targets have a negative impact on loan growth.
• Price leadership bans (both general and SME-specific) have ambiguous or negative impacts on loan growth, though not statistically significant.

Qualitative Framework Findings

• 13 banks across the EU included a condition to maintain lending to the real economy.
• 3 banks had specific SME lending targets.
• Examples include Bradford & Bingley (UK), Bank of Ireland (IE), Bayerische Landesbank (DE), and others.

Additional Analysis: Banking Models and Lending to the Real Economy

• Five distinct banking models were identified:
  • Focused retail
  • Diversified retail (Type 1)
  • Diversified retail (Type 2)
  • Wholesale
  • Investment
• STV banks (e.g., cooperatives and public banks) continued to lend at lower levels during crises.
• Nationalised banks did not contribute to the real economy and had higher loan loss provisions.
• Return on assets (RoA) declined for all banks during crises, with retail and investment banks suffering the most.
• Distance to default (Z-score) was higher for STV banks, indicating greater resilience compared to SHV banks.
• Nationalised banks had the lowest distance to default, suggesting higher risk of failure.

Policy Recommendations

1. Close monitoring of whether restructuring conditions in State aid decisions are fulfilled and lead to the expected effects.
2. Improve disclosure requirements on SME exposures by banks.
3. Enhance understanding of the role of SME loan guarantee measures during economic cycles.
4. Support credit mediators (e.g., Belgium, France, Ireland) and allow SMEs to obtain their own credit history to facilitate switching between banks.
5. Improve risk absorption capacity of banks in good times to reduce the need for restructuring in bad times.
6. Better coordination of macro-prudential supervision and banking structure monitoring.

Conclusion

The study highlights the critical role of SMEs in the EU economy and the challenges they face, particularly in accessing finance. While conditionality in State aid decisions can be legally justified, its economic impact on SME lending remains mixed and not always significant. However, the qualitative analysis suggests that conditionality can play a role in ensuring continued lending to SMEs during crises. The findings also emphasize the need for better coordination, disclosure, and risk management to support SMEs effectively through State aid and banking policies.