Spain threatened by resurgent
credit crunch
More than a century ago, Manuel Rodriguez left his
fishing village on Spain’s southern coast and moved to Madrid to build guitars
for local flamenco musicians. Three generations on, the family is still in the
trade.
Based in the small town of Esquivias south of the
capital, Guitarras Manuel Rodriguez and Sons turns out more than 5,000
handcrafted flamenco and classical guitars every year, along with a small range
of other wooden instruments.
Despite the emphasis on tradition and manual skill,
this is a capital-intensive business. The work floor is dotted with heavy
machinery, and amid the rows of half-finished guitars there are
carefully-stacked piles of decades-old precious woods: ebony and mahogany from
Africa, and rare Brazilian rosewood. “This is our bank,” says Manuel Rodriguez
Jr, who owns the business with his brother, as he passes the valuable wooden
slabs.
Starting a company such as his from scratch, he
adds, would be almost impossible in Spain’s
current economic climate: “If you go to a bank today, no one will
give you credit. And even if they gave you credit, they would demand a big
deposit and would demand eight or 10 per cent in interest.”
Similar complaints about the dearth of lending by
banks can be heard in small and midsized businesses up and down the country,
and are raising concern not just within the Spanish government but also the
European Central Bank in Frankfurt.
Spain’s economic crisis and the near-collapse of
its banking sector last year have conspired to choke off the flow of bank loans
– threatening to dry out the vast and versatile pool that dominates Spain’s
private sector.
In the five years since the crisis started, no
fewer than 450,000 small and medium-sized enterprises have gone under, says
Jesús Terciado, the president of Cepyme, the
Spanish SME association. “But it is not just about staying in business – it’s
also about growth. There is no way you can grow your business at the moment,”
he says.
Countries such as Spain and Italy are acutely
sensitive to a lending crunch for SMEs, because so much of their economy
depends on them – and because companies such as Mr Rodriguez’s in turn depend
so heavily on bank loans. In the case of Spain, SMEs make up 99.9 per cent of
all businesses and employ almost three out of every four workers. If they
cannot survive and thrive, neither can the Spanish economy at large.
Economists point out that SMEs are typically too
small to raise money from foreign banks, let alone to tap the bond market. This
leaves them at the mercy of local banks at a time when Spain’s banking crisis
and housing bust are forcing lenders to drastically shrink their loan books.
Data from the Bank of Spain shows that lending to
companies has fallen in every quarter since 2009. According to La Caixa, the
Barcelona-based bank, the crisis has “led to severe financial restrictions that
have hit SMEs particularly hard”.
Lending surveys by the ECB show that the lack of
bank credit is among the top worries for small businesses in Spain – with 27
per cent of respondents saying it is the biggest problem of all. Only Greece
has a higher share of small businesses worried about credit.
Researchers at Deutsche Bank, meanwhile, point out
that last year almost 20 per cent of all loan applications by Spanish SMEs were
rejected – twice as many as for large companies. “Banks in the struggling
countries [such as Spain and Italy] are materially tougher on SMEs than on
large companies,” it says.
What worries policy makers in Spain is that the
funding crunch for SMEs persists despite the recent improvement in investor
sentiment towards the country as a whole. Both the treasury and Spanish
multinationals are once again meeting keen demand for their bonds, driving down
yields and borrowing costs. The general easing, however, has yet to filter
through to the SME sector.
In the latest attempt to alleviate the problem,
Spain’s government in February launched measures to improve the flow of capital
to small businesses. Those include a reduction in value added tax and a
beefed-up regime for credit guarantees. Some of Spain’s largest banks,
meanwhile, have set up new SME credit facilities to help loosen the funding
constraints.
Mr Terciado says all these measures are welcome,
but cautions that they are unlikely to have an immediate effect. With Spanish
banks committed to a further sharp cull in their branch network and more
shrinkage in their loan portfolio this year, he expects little improvement
before 2014. In any case, he laments, “many companies have already fallen by
the wayside”.