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EBRD, IKB LOAN PROGRAMME MAY HELP SLOVAK BUSINESSES

New bank deal gives hope to small firms

Describing small and medium-size enterprises as "the backbone of any economy", the European Bank for Reconstruction and Development and German bank IKB announced a deal April 23 which may help Slovakia's beleaguered small business sector.
Under an agreement signed during the European Bank's annual conference in London, the bank will take on the risk for 70 million euros of a 200 million euro credit fund at IKB for small and medium-sized enterprises (SMEs) across central Europe.
The move will free up credit at the bank and increase funding for German companies operating in the central European region. The European Bank (EBRD) and IKB - one of the largest commercial providers of long-term investment finance to small and medium-sized enterprises in Germany - say it will indirectly bring about the creation of new jobs through increased business with local SMEs.


EBRD President Jean Lemierre said that small and medium-sized firms are the "backbone" of any economy as the bank launched a new project which may help Slovak SMEs.

Describing small and medium-size enterprises as "the backbone of any economy", the European Bank for Reconstruction and Development and German bank IKB announced a deal April 23 which may help Slovakia's beleaguered small business sector.

Under an agreement signed during the European Bank's annual conference in London, the bank will take on the risk for 70 million euros of a 200 million euro credit fund at IKB for small and medium-sized enterprises (SMEs) across central Europe.

The move will free up credit at the bank and increase funding for German companies operating in the central European region. The European Bank (EBRD) and IKB - one of the largest commercial providers of long-term investment finance to small and medium-sized enterprises in Germany - say it will indirectly bring about the creation of new jobs through increased business with local SMEs.

IKB board member Stefan Ortseifen said that the scheme would have a "significant impact on local SME sectors" through their work with domestic firms, making more money available for German companies to expand operations in other states.

Officials at IKB could not comment on the exact details of the deal, but the rubrik of the agreement stipulates that credit must be used for "the financing of acquisition, expansion and/or modernisation investments and related working capital needs in the region".

Olaf Streuer, press spokesman for the bank, said: "The project will bring not only obvious retail rewards [for countries] but also positives with connections and work for domestic suppliers."

The agreement itself adds that local small firms will benefit from the "entry of middle-tier foreign companies [which] promote growth of SMEs in local economies through the creation of joint ventures and networks of production outsourcing, sub-contracting and distribution".

Funds still needed

Slovak business leaders immediately welcomed the move as one which would create more jobs in the SME sector, and identified it as a shift away from what they see as the EBRD's traditional focus on much larger companies.

"The EBRD usually concentrates on larger companies, but if this is a sign that it may be changing this then it is very welcome," said Darina Kalužniková of the National Agency for the Development of SMEs.

However, despite the possible impact of the scheme, analysts and businessmen insist that direct funding is needed to kick-start a flagging corporate sector, especially for smaller organisations.

Small businesses have complained of the attitude of many Slovak banks to lending. The country's largest banks, including state-owned Všeobecná úverová banka (VÚB), which has a 30% share of the Slovak loan market, have been loath to relax what they admit are strict loan criteria, having been stung by mismanagement before.

During the last government [1994-1998] loans were granted to companies on the basis of what present managers say was more personal and political ties than sound business plans.

The deals left 100 billion crowns ($2 billion) in bad and classified loans within the sector which the government was forced to mop up over the last two years, and finance houses have remained cautious with lending ever since.

VÚB has said that while this year it will increase lending, it will only extend credits to projects where returns on loans can be fully guaranteed. Only Tatra Banka, the largest private bank in Slovakia, has said that it would this year be extending more money to small and mid-sized firms specifically.

"The funds available for SMEs in Slovakia are very limited in terms of what can be got from banks. Funds made available from elsewhere are what Slovakia needs," said Marek Jakoby, analyst at the MESA 10 economic think-tank. "Schemes like this are welcome but will not have that much effect."

In the rubrik for the deal, the EBRD stresses the problems many small business face in obtaining credits. "The unavailability of long-term financing for SMEs is a severe constraint that this facility aims to ease," it says.

A new approach

The EBRD has said that it is turning its focus more and more towards SMEs, and has launched a number of projects across the region. Since its foundation 10 years ago, it estimates that through its activities it has indirectly helped create more than 100,000 SMEs throughout central and eastern Europe.

The latest project with IKB, say EBRD representatives, is further evidence of its focus.

"We see SMEs as vital to any economy and very much a part of a continuing focus for us. They are a means of helping countries in the creation of new jobs and reducing poverty," said the EBRD's Jan Singh.

Announcing the deal, EBRD president Jean Lemierre emphasised the importance of SMEs in driving economic growth: "Small and medium-sized firms are the backbone of an economy and the foundations on which new jobs can be created.

"This deal with IKB will allow us to help revitalise these sectors [in central European countries]."

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