LTRO’s, TLTRO’s, finance schemes, growth plans, you name it and they’re trying to flog it in Europe. With all that liquidity sloshing around you can’t say Europe is short of funding. So why aren’t people borrowing?
The case is highlighted in Spain where banks seemingly can’t give the money away and people are turning down offers of funds, reports Bloomberg. They spoke to the owner of one firm who said;
“We’re getting calls from lenders every day. They can see that they’ll benefit from a loan because we’re doing good business and will return the money. Whether it’s in our interest as well is a different question.”
Short term loans up to €1m and for a period of around a year are well down on the 2008 peak. Bank of Spain data says that the total stock of loans of this type were around €470bn below the 2008 highs of€1.87tn.
It’s not to say that demand is completely flat as one €2.85bn taker of the recent TLTRO funds, Banco Popular Espanol, has seen SME lending jump 6% over the last few months and is hoping to boost that to 10% by the year end. To help, they’ve entered an advertising campaign starring a Spanish NBA star. Overall, Spanish SME loans stood at a 2 year high in July at €12.9bn
One of the main reasons why companies and firms aren’t borrowing is that they were hammered by banks over the crisis. A lot of companies had the funding rug pulled out from under them by banks scrabbling around to raise cash. It was a picture mirrored over here in the UK. A lot of trust was lost with banks but it did have a very positive effect on small and medium sized businesses.
Businesses got a wake up call and with lending tight they had to learn to fend for themselves and become less reliant on borrowing. The move to greater self sufficiency is nothing but good news for SME’s as they are now living within their means. In real terms it means that economic progress can be slow. Instead of borrowing €20k for new machinery companies now wait until they have the money in the bank. The proof comes from firms like Vincle International, a software company looking to branch out into Latin America, whose owner said;
“ “Funding ourselves enables us to be independent. Spending money they didn’t have led many companies to close down in Spain. We prefer a more sustainable approach.”
That’s of no use to the ECB or European governments who are pressured into finding a fix as quick as possible, but it is a very good sign for the economy in the long term as real sustainable growth will come and be built on solid foundations, not on another lending house of cards.
That won’t be good for banks and their business but I say “sod em!”. They caused this mess and now they have to live with it and the after effects
Full story from Bloomers here
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