A fresh breath for small business

The economy is gradually getting back on its feet, with a notable growth of banking activity in the real sector. In particular, in December 2010 new loans grew to 120 billion hryvnias, while deposits reached 113.6 billion hryvnias, according to the statistics bulletin of the National Bank.

Of course, banks are still rather cautious about the real sector of economy, and scrutinize their potential clients in a most thorough manner. Yet they are past the “crisis scare,” and banks are paying more and more attention to small business, not just big ones. The Day interviewed several bankers concerning the prospects for loans for small and medium businesses in 2011.

Two tendencies can be observed on the market, explained Pavlo Krapivin, first deputy chairman of the board at Kontrakt Bank. On the one hand, the Russian capital which came to Ukraine has been oriented towards big business, i.e. national enterprises. On the other hand, as early as in 2010 one could observe a tendency towards a renewal of loans to small and medium businesses, first of all in the trade sector. “This year crediting to small business will be continued, because it is easier to work with. It is not prone to macroeconomic threats, whereas 2011 does not show any signs for serious exchange rate threats,” said Krapivin.

According to Anton Novoseltsev, director for small and medium business development at VAB Bank, the policy on loans to small clients will continue to be cautious, and thus remain at last year’s level. “That means that new loans will be issued according to the payments of the current ones. Should economic rates speed up, the growth of loans to the entire corporate sector, including small and medium businesses, could reach 15 percent,” he said in his commentary to The Day. The expert also noted that banks consider cooperation with small and medium businesses to be promising, so they are working on a relevant loan policy regarding products and methods of evaluation of loan applications. “The bulk of activities in this sector is scheduled for the second semester,” he pointed out. “If this direction is a priority in a bank’s strategy, and if that bank does not mostly work with big clients, a growth up to 20 percent is possible,” Novoseltsev added.

Krapivin also mentioned growing cooperation with small entrepreneurs. According to him, since spring the bank has increased its marketing activities and expects the loan portfolio in this sector to grow considerably. The banker believes that the overall growth of this kind of lending will be asymmetrical, as different banks have their own ideas regarding small business.

The bankers whom The Day interviewed believe that crediting to replenish turnover capital and implement medium-term investment projects (for example, to purchase vehicles or equipment) will be in the highest demand.

Andrii Repko, director of the department for small and medium business products at Alpha Bank (Ukraine), also predicts a growth of the credit portfolio for small and medium businesses, albeit on a more moderate scale. “We expect the credit portfolio for small and medium businesses to grow by a quarter in 2011. It may look ambitious at first sight, but, according to our observations, the credit portfolio for small and medium businesses in most banks has decreased two- or threefold since the beginning of the crisis. So this is not yet growth, but merely a return to pre-crisis levels,” he claimed, as quoted by Interfax Ukraine. According to the expert, banks are going to actively employ the financing of purchasing of equipment via leasing schemes.

Meanwhile Viacheslav Yutkin, first deputy chairman of the board at Prominvestbank, believes that the rate of growth of loans for small and medium businesses will be lower than that of the whole credit portfolio for corporate clients.

“Considering the experience of the past years, when it was this very segment of small and medium businesses that was in the worst situation, banks will have to increase the credit portfolio in this sector at the expense of their verified clients, whose business is understandable and transparent for the bank: the clients have always been served by the bank, and has always done their financial transactions with this bank. There is going to be an increase, but compared to the growth of corporate crediting, it will not be very large,” he is quoted by Interfax Ukraine as saying.

This view is also supported by Oleksandr Okhrimenko, president of the Ukrainian Analytical Center. He told The Day that currently 32 percent of all bank portfolios in Ukraine is made up of small business loans. He believes that by the end of 2011 their share will have grown by 5 percent. According to the expert, this is held back by a lack of reliable securities that small enterprises can provide to banks, as well as by their lack of positive credit records.

As far as the credit interest rates go, experts do not expect them to go down significantly. Krapivin believes that interest rates for loans will decrease. However, despite a radical decrease in the cost of mobilizing resources and managing deposits for banks, interest rates for loans are not going to decrease as radically, he remarks. “This is related to the fact that banks are very conservative in what concerns cre-dit policies, and they tend to incorporate a certain percent for risk in the interest rate,” explained Krapivin. “That is why interest rates will not go down noticeably.” He forecasts 16 to 25 percent per annum in hryvnias (depending on the degree of security) in 2011. To get a loan at 16 percent interest, an enterprise must provide proof of its pro-fitability, good financial records, and reliable securities (preferably not residential real estate).