ABS must find mezz investors to unlock SME lending
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ABS must find mezz investors to unlock SME lending

The European Central Bank is set to give ABS investors an important guarantee of liquidity with its impending outright purchases, but bankers on the SME financing panel at Global ABS said the market must find investors to buy further down the capital stack to help undercapitalised banks lend.

The ECB last week said it was preparing purchases of certain high quality ABS in a bid to revive securitization in Europe, in order to help banks lend to small and medium-sized enterprises.

But members of the panel were concerned that initiatives aimed at providing liquidity and standards for senior tranches are of little help to undercapitalised banks that face being left holding the concentrated credit risk.

“Somebody has to take the risk,” said Dominik Walter, associate director, securitised products at UniCredit. 

“Most of the banks in the periphery of Europe have too little capital. We have to find a way for ABS to help banks provide funding to SMEs, we have to find investors to take not only the senior tranches but the mezz and junior tranches as well.”

Small ones suffer

SME lending in Europe has fallen 10% from a peak of €4.6bn in 2009 and is still declining, said Helmut Kraemer-Eis, head of research and market analysis at the European Investment Fund.

Credit is being allocated away from risk, he said, in particular away from smaller and younger companies, which is “dangerous for the economy”.

“During the crisis the gap between the big loans and the small loans increased significantly,” he added. “On one hand this is rational behaviour from the banks, but on the other it is a sign of credit rationing which is bad for the SMEs.”

Can’t, won’t, or both?

The problem of stagnant SME lending is complicated by the tussle between banks and borrowers over whether the principal problem lies on the supply or demand side.

In Spain, the biggest problem is on the supply side, said Manuel Gonzalez, deputy general manager at Intermoney.

“Banks face the stress tests this year and they need to show a good picture," he said. “They face a very difficult sector in lending to small companies and the economic recovery is not yet consolidated.”

The SME funding problem in the UK is also on the supply side, according to Sachin Patel, head of institutional sales at peer-to-peer lender Funding Circle.

“The SME lending market has been worth around £7.5bn a month, and 85% to 95% of that money comes from the top five banks in the UK,” he said. “The issue in the UK is these banks have been pulling back from the market. The business makes less sense for them now than it did pre-crisis.”

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