In the context of yesterday’s post on the banking freeze-up for SMEs in Finland, there is a new article on Tekniikka&Talous, in which the Finnish co-operative banks weigh in on the debate. Finland, like many European countries, has still a fairly strong network of co-operative banks, and the news article can be seen as 1) a ‘we-are-different’ argument or 2) a kind of PR strategy (read: advertisement) for this particular network of co-operative banks. Whichever is the correct interpretation I leave to the reader but here is a rough translation.
THE MONEY SUPPLY FOR SMEs HAS TIGHTENED – CO-OPERATIVE BANKS REASSURE FIRMS
The OP-Pohjala Group reassures firms, that stricter regulations on the capital adequacy of banks does not influence the availability of finance for firms. Lately in Finland and Europe there has been a discussion about the increase of financing costs for SMEs, which is feared to weaken economic growth.
– The capital adequacy of the OP-Pohjala Group is strong and enables the financing and exploration of projects in the normal way regardless of the economic sector, ensures Finance and Card Activity director Jari Tirkkonen.
He adds that loan margins have increased due to the rise in costs of fundraising and tightened regulation.
Regardless of the increased loan margins the general low level of interest rates and similarly the low cost of business finance have on the other hand not increased investments but an opposite development has happened: the amount of investments, which support growth and employment, has clearly declined.
– This reflects the economic activity at the moment very well. It also shows in the volume of the business credit in banks. Already in the beginning of the weaking of the economy we advised clients to prepare for a postponed recovery as well as limits to working capital and other funding.
If a long slow-growth phase continues for example 2-3 years, especially firms that did not benefit from the short recovery in 2009 may get into difficulties, according to Tirkkonen.
The situation differs by economic sector
The situation differs greatly by economic sector and by company, but in general Finnish companies’ capital adequacy and liquidity are still in good shape, according to Tirkkonen.
– For example the order portfolios of principal subcontracted workshops have not decreased as much as one could expect, so it is not expected to see a big wave of bankruptcies through this route.
Tirkkonen emphasises that, regarding the banks’ customers, they work for the long term, both concerning working capital and investment capital.
– Businesses have kept in contact more than previously, due the economic situation.
The equity rate and capital adequacy of firms are always important in granting finance, whether it is acquired through previous profits or capital investments.