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Economy: Finding the right funding

Although the banking sector has reduced its lending activity due to the deteriorating business environment, some Hungarian banks are still willing to provide financing to SMEs. However, with only one out of five Hungarian SMEs creditworthy, the rest are left to rely on state-subsidized programs.

There is no economic development without small- and medium-sized businesses (SMEs), as this sector plays a vital role in both employment and contribution to GDP. However, SMEs cannot develop without access to financing.

Besides bank loans and leasing constructions, options include capital and mezzanine financing as well as various subsidies. Unfortunately, only about 20% of Hungarian SMEs are creditworthy, compared to 70-85% in western Europe. 

Some banks are still willing to finance SMEs, but the extraordinary bank tax, the new FX loan repayment scheme and Hungary’s image in the region all work against banks’ lending activity, Erika Marsi, vice president of the International Training Center for Bankers, recently said at Portfolio.hu’s SME financing conference. She believes that the situation could be managed by state guarantees and simplified constructions. 

Marsi expects new developments in bank financing, such as the introduction of new scoring systems (which also include behavior scoring), and stricter monitoring. Sectoral risks will be paid more attention, and certain areas, such as the construction industry, might be blacklisted. 

The good news is that previous margin levels and charges are expected to decrease somewhat, Citibank regional manager Szilvia Danka said. Tailor-made constructions will be preferred to standardized products. Banks now seek a closer and longer-term relationship with their clients as well as a deeper understanding of their businesses. Unsecured lending will decrease; banks now require solid collateral, such as real estate or guarantees. 

Both the amount and duration of loans granted to SMEs is decreasing, Marsi pointed out. The stock of SME loans dropped 7.4% year on year by the end of June and the loan portfolio also deteriorated. For instance, of the 40,000 loans given to small- and microenterprises, 32,000 are problem loans. “It is time to introduce reorganizational schemes for these businesses,” she stressed.