Small and medium-sized enterprises say banks hold back money

Economic expectations remain low

print this

Small and medium-sized enterprises in Finland report that banks are taking a very tough line on credit, according to a study by the Confederation of Finnish Industry (EK) conducted in September.
      According to the EK survey on the impact of the economic crisis on the financing and liquidity, one in four export companies had significant difficulties in security short-term financing, whereas the figure was just 16 per cent in June.
      Pekka Tsupari, Director of SME Affairs at EK, says that financial markets are not operating normally yet, as usually only between two and three per cent of small and medium sized companies suffer from significant problems in financing.
      “There is very much caution now, with banks fearing growth in credit losses. Especially the small and medium-sized enterprises."
     
Banks are holding back on money because enterprises are seeing their capital dwindle, while their capacity utilisation rate has gone down to below 70 per cent in some cases, while fixed costs remain unchanged, and profitability is weak, owing to falling prices.
     Tight financing is also reflected in SME liquidity. A fifth of small and medium-sized enterprises said that they had experienced difficulties in making payments in recent months. Small service sector companies have been especially severely hit, Tsupari says.
     The economic outlook for SMEs also remains grim, although the decline in output has eased somewhat.
     There has been some improvement from the worst days of late 2008, but prospects are still below the long-term average.
     
The EK cyclical barometer released on Wednesday indicates a continued weakening trend as winter comes, without much indications of recovery. Demand is weak, and more jobs are being cut in manufacturing, services, and construction.
     Order books remain thin, although the amount of goods in stock has gone down to below the normal level. Sixty-five per cent of companies fear that the situation will not change much, and only 14 per cent expect better times soon.
     While there has been some improvement in manufacturing and services since summer, expectations in the construction industry have grown worse. Tsupari says that this unexpected result stems from the great difficulties experienced by small construction companies employing under 50 people.
     Nearly half of small and medium-sized enterprises suffer from weak demand, and correspondingly, there is plenty of free production capacity.
     There is no sign of the labour shortage, which was still a problem about two years ago. In the service sector, just six per cent of respondents said that they suffered from a shortage of skilled labour.


Links:
  Confederation of Finnish Industries EK

Helsingin Sanomat