Four days before the ECB publishes the results of the asset quality review and stress tests, the EIB and IMF gathered participants from the banking and finance sector, central banks and multilateral institutions to debate how, looking beyond the results, we can rebuild the capacity of banks and capital markets to finance SMEs in Europe. The workshop, Unlocking SME Financing in Europe and the Role of Capital Markets, was held in Brussels 22nd-23rd October, 2014.
Today, in a context of abundant liquidity, very low inflation and extremely weak growth, it is clear that lack of demand is a key constraint on recovery. However, in the wake of the crisis, the capacity of many banks to lend to relatively high-risk sectors such as SMEs and young, innovative firms is seriously impaired by capital constraints and a strong deterioration in the quality of the assets on their balance sheets. Participants all agreed that the ECB’s comprehensive assessment is a vital first step, but that we also need concerted action to build on the results and ensure that an impaired banking sector does not become a constraint on recovery.
“Providing liquidity to banks is not the only measure for easing the obstacles to access to credit for the real economy” said EIB Vice-President Dario Scannapieco. “We also need to complement liquidity with more solutions that would make it possible to offload the credit risk from the balance-sheets of the banks.”
Over 80 participants discussed papers presented by the EIB Economics Department and the IMF European Department, with a further Bankers’ Roundtable lead by Klaus Trömel, EIB Director General of Operations. Keynotes speeches were given by Yves Mersch, ECB Executive Board Member and Carlos da Silva Costa, Governor of the Bank of Portugal.
The first panel focused on how to improve banks’ risk-taking and lending capacity by increasing their ability to resolve or dispose of non-performing loans, particularly through the further development of markets for such assets. The workshop debated the range of complementary measures needed, from addressing regulatory hurdles to turning around over-leveraged companies.
The second panel focused on reviving markets in high quality securitisation in Europe: “Securitisation can be seen as a seen instrument to reshape the funding of the European economy” said Governor da Silva Costa, “whereby long-term investors such as insurance companies and pension funds are given a more important role in the funding of the economy, while preserving client/banks relationships”.
Said Yves Mersch: “Securitisation can help to connect SME financing needs with the funds of bank and non-bank investors. It can do so by assisting banks’ ability to fund and distribute risk.”
The heavy dependence of European firms, especially SMEs, on bank credit makes the recovery of banks’ risk taking capacity vital, it was agreed. At the same time, the need to address the wider challenges that SMEs face was also emphasised.“It’s obvious that any initiatives aiming to facilitate access to financing for SMEs must, in the current situation, be part of more general policies that support associated demand,” noted Debora Revoltella, Director of the EIB Economics Department.