The SME loan recovery challenge
Banks are gearing up to tackle the pandemic’s SME lending legacy, says Intrum’s M&A Director Stanislav Krasnodemskyi.
As countries across Europe start to plan for life after the pandemic, banks are potentially facing a tsunami of non-performing loans to small and medium-sized businesses (SMEs). Traditionally, these businesses are the among the least resilient to economic shocks such as that caused by the Covid-19 global crisis.
Countries around the world have worked hard to stave off a pandemic-induced employment disaster, with governments taking steps to ensure businesses can survive these testing times.
Increased pressure on SMEs
This is especially the case with SMEs, many of which are the lifeblood of industries that have been particularly affected by the pandemic and its restrictions. Across European countries, SMEs account for as much as 70 per cent of industries such as transport, construction, retail and leisure.
The increased pressure on SMEs is confirmed in Intrum’s annual European Payment Report, with two in five (37 percent) of Europe’s SMEs saying liquidity-squeezing late payment is a threat to their business.Stanislav Krasnodemskyi, M&A Director at Intrum.
The increased pressure on SMEs is confirmed in Intrum’s annual European Payment Report, with two in five (37 percent) of Europe’s SMEs saying liquidity-squeezing late payment is a threat to their business.
As a result, these businesses have been the main beneficiaries of government support programmes offering guaranteed credit or repayment delays. Add to this the falling revenue many have endured, and SME indebtedness has risen significantly.
In the Eurozone, new bank loans to SMEs hit EUR853bn in 2020 – their highest level since 2009. A significant proportion of these were government guaranteed.
Expectation of peak in NPLs across European markets
But government support programmes cannot last forever and their end will inevitably precipitate a spike in non-performing loans across all European markets. While major banks are hoping that support has allowed SMEs to wait out the crisis and pick up where they left off, it will not be enough for all.
As well as keeping viable SMEs afloat, these interventions have masked the failure of businesses that were destined to close regardless of Covid-19. The overall default rate will depend on many factors and it is too soon to predict exactly how high it will be. Given the volumes, even a relatively small default rate poses a significant challenge.
The most important thing is for banks and their partners to tailor solutions to specific circumstances – this is the best way to ensure higher recoveries and deliver a positive customer experienceStanislav Krasnodemskyi, M&A Director at Intrum.
In many countries, public money is at stake so it is crucial that lenders operate an effective and sensitive recovery programme. What that means will differ between countries and individual lenders. Increased pressure on recoveries will need to be tackled in a range of ways, from increased third party support, to portfolio sale and even bank carve outs.
The most important thing is for banks and their partners to tailor solutions to specific circumstances – this is the best way to ensure higher recoveries and deliver a positive customer experience
How Intrum can help
As Europe’s leading credit management company, Intrum is a major servicer of SME loans. We are poised to support banks in finding solutions to their non-performing loans – from servicing to portfolio sale and carve outs. To talk to us about your requirements, contact us through the form below.
