Large companies increasingly resorting to banks for credit
Small companies have to compete with big players for loans
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The acute phase of the financial crisis may be over, but problems in corporate financing are only now becoming emerging for many Finnish businesses.
Sources of credit are fewer in number, and collateral requirements have become more strict. The conditions for credit can also be prohibitive.
Many blame the banks. However, in this respect, the criticism misses the mark somewhat.
Banks have actually increased their financing of businesses by about one fifth.
The problem is that even larger companies, which have rarely resorted to bank loans, are doing so now, as their traditional channels of finance have dried up. Consequently, large corporations are competing with small and medium-sized businesses for bank credit.
One good example of a Finnish corporation in such a situation is the engineering company Metso, which has generally acquired its long-term financing by selling bonds on the international market, and through credits from specialised financial institutions. Short-term credit needs, for less than one year, have been dealt with through domestic commercial papers.
“A hundred million euros used to be just a phone call away”, says Metso’s financial director Pekka Hölttä.
Adding to that was a loan taken from an international bank syndicate, which was renewed in 2006, and which is valid through the end of 2011. Metso has used banking services, but usually not for borrowing.
Now the financing situation is quite different: the liquidity of the Finnish commercial paper market has dried up.
Bonds are not issued as freely as they were before: only the most stable companies can get them sold, and their interest rates have risen sharply.
Metso was last in the bond market in 2004, and at that time, it sold its bonds at an 5.125 per cent interest. Now even the most solid of companies have to pay interest of between 8 and 9 per cent.
Getting syndicated credit is more difficult than before, as representatives of the large international banks that compiled them have packed up and left Finland. “It could be challenging to take out new credit like this, now that banks have a clear need to limit their balance sheets”, Höälttä says.
Metso has not tried to borrow money from commercial banks, nor has it engaged in the practice of borrowing back pension contributions. The most important public sector finance services are the export credits provided by Finvera, whose decision to increase lending was welcomed by Metso.
Small businesses have made note that large corporations are increasingly applying for bank loans, says Harri Hietala, economist at the Federation of Finnish Enterprises. “To some extent they have pushed the needs of small and medium-sized companies aside”, Hietala says.
Small entrepreneurs are still getting credit, especially for short periods of time, but requirements for collateral have become more severe. This worries Hietala, because banks still account for as much as 80 per cent of the finance needs of small businesses.
Reijo Karhinen, Chairman of the Federation of Finnish Financial Services, admits that the growth in corporate financing by banks is the result of the “return of large companies to the banks”.
He attributes this to the fact that global players have gone almost completely, and that neither Finnish nor foreign markets for commercial papers function very well.
Helsingin Sanomat
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| 16.12.2008 - TODAY |
 Large companies increasingly resorting to banks for credit |
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