Small businesses are overdue on debts: the trend has intensified

The dynamics of the small business lending market and the activity of small businesses in general in January–June exceeded all possible expectations – every month new records appeared and historical lows were updated, as is the case with overdue loans. But in August the trends changed direction.

According to the Bank of Russia, the loan portfolio of small businesses as of July 1, 2023 reached a historical maximum of 11.4 trillion rubles. In June, the increase amounted to a record 331.7 billion rubles. (+3%). The annual growth rate of debt as of July 1 was the highest since the beginning of this year, and the total volume of issuances for the first 6 months of 2023 amounted to 6.5 trillion rubles, which is 30% more than the 1st half of 2022 and 35% more than in the 1st half of 2021. The share of SMEs in the total portfolio reached 20%.

At the same time, the quality of the portfolio at the end of the six months became a record high – the level of delinquency of SMEs as of July 1, 2023 dropped to 4.8%. For comparison: the same figure for large businesses was at 5.1%. Of course, one cannot fail to take into account that more than half of the portfolio falls on several leading industries: professional, scientific and technical activities, real estate operations, and construction. In these business segments classified as small, there are certainly companies that, in fact, are not SMEs.

Business activity of small and medium-sized entrepreneurs in the first half of 2023 also showed very good results, reaching a record value in the RSBI “Supports of Russia” and PSB index (55.3 points, while an indicator above 50 points indicates an increase in activity). The index is based on a survey of SME CEOs and is an indicator of the economic situation. In July, the growth of the indicator continued and reached a value of 57.1.

However, according to the Central Bank, the trends reversed in July. The small business portfolio decreased by almost a trillion rubles, to 10.3 trillion, and the share of overdue payments returned to the January level – 6.5%. This change in trends cannot be explained solely by the influence of the revision of the SME register. At the same time, the increase in the key rate could not yet have an impact on the credit market in July. That is why it is interesting to look at the statistics of the second half of the year. Moreover, an increase in the Central Bank’s key rate, and subsequently market rates, will undoubtedly cool down the dynamics.

As of August 1, the share of overdue debt in the small business portfolio has increased sharply, returning to the level at the beginning of the year – 5.6%. But even if we adjust the assessment of portfolio quality for restructuring and credit holidays, take into account recent changes and the fact that some enterprises are not small at all, the credit quality of SMEs is still good. For comparison, as of August 1, 2022, the share of overdue payments was 6.6%. Small and medium-sized businesses are actively growing and developing, attracting more and more funds from banks. And at the same time, it fulfills its obligations and services loans quite disciplinedly.

The role of government programs in these conditions is very great. And not only preferential loans, but also incentive regulation measures, as well as guarantee programs for the SME Corporation and regional guarantee organizations. According to the Ministry of Economic Development of the Russian Federation, in 2022, small and medium-sized businesses were able to attract more than 1.3 trillion rubles in credit funds through government support instruments.

“After raising the key rate, market rates undoubtedly go up, but preferential programs, both federal and Moscow, are working. The fund acts as a guarantor for both regular market and concessional loans, where the entrepreneur does not have enough collateral. We are seeing high demand from SMEs; applications for our guarantee are 1.5–2 times more than last year,” said Anton Kuprinov, executive director of the Moscow Guarantee Fund. According to him, now about half of the transactions are quick “in-line” guarantees, where the fund automatically gives a positive decision after the bank. “Such products are undoubtedly the future. So far, borrowers, on the whole, are successfully coping with their obligations, there are payments, but they are proceeding as usual,” Kuprinov is sure.

In the last six months, the greatest demand has been for preferential loans for small businesses specifically for working purposes. This is understandable: new niches have become available, which SMEs, due to their flexibility, quickly mastered, and the demand for products from the population has increased. Thanks to government procurement, the goal of achieving technological sovereignty, and registers of supported activities, businessmen were able to more clearly determine what exactly needed to be sold or produced. Due to these factors, the turnover of small businesses has increased greatly, and behind it the need for money.

Obviously, for small and micro businesses, market rates will be above 20%, taking into account the increase in the key rate. And preferential programs become the only possible and affordable financing option. Therefore, it is extremely important not only to preserve these programs, but also to expand them. And not only preferential loans, but also guarantee support, because this is a sharing of risks with banks, which is extremely important in the current conditions.

Recently, the Bank of Russia voiced the thesis that SME lending support programs should not be expanded due to the fact that they contribute to the deterioration of the quality of the loan portfolio, motivating banks to issue loans to lower-quality borrowers. It is difficult to agree with this, since preferential programs are not mandatory for banks. At the same time, preferential programs help to significantly reduce business costs and themselves contribute to increasing creditworthiness. After all, low rates mean a reduction in costs, and therefore an increase in financial stability. And, of course, government programs today contribute to the development of small manufacturing businesses and knowledge-intensive projects, which is extremely important for strengthening and diversifying the Russian economy.

Published in the newspaper “Moskovsky Komsomolets” No. 29142 dated October 24, 2023

Newspaper headline:
Interrupted flight