PKO BP looks to gov't to co-finance SME loans
By : Bogda Zukowska
Poland's largest state savings bank is gearing up to strengthen its leading position in financing small and medium-sized (SMEs) enterprises by encouraging the state's participation in funding its SME-oriented financial products.
Wojciech Kwiatkowski, deputy president of Powszechna Kasa Oszczednosci Bank Polski (PKO BP), said last week that the vast majority of newly created small businesses are not eligible for credit because of banking sector regulations. "Therefore we are seeking a commercial-public partnership to share the risk that we're not allowed to bear alone, and to provide capital for start-up companies," he said.
Out of Poland's 1.7 million SMEs (with up to 200 employees), some 56% have been operating for less than two years. According to banking regulations, these businesses, which lack established track records, do not qualify for credit. As a result, the regulations are seen as impeding the development of SMEs and the growth of financial institutions, otherwise eager to lend to cash-hungry new businesses.
"To facilitate SMEs' access to financial products, such as investment capital and overdraft credits, we need financial institutions willing to share the risks with banks to finance small business," said Jerzy Jagodzki, representative of the Board of Commerce and Services, a small-business association.
PKO BP, which has 25% of the market for financing SMEs, is particularly interested in state aid programs aimed at the sector. Small and medium-sized businesses account for 96% of PKO BP's 408,000 corporate clients. SMEs also comprise 96% of deposits and 75% of the loans the bank grants to its corporate clients.
As small businesses and banks increasingly look to state aid to fund the development of financial institutions that would in turn stimulate growth of SMEs, the Economy Ministry can only meet a fraction of the money needed. Less than one-third of the ministry's zl. 64 million ($15.6 million) budget earmarked for promoting the small-business sector may be used to co-finance mutual guarantee schemes with local governments and loans for SMEs.
The first institutions specializing in lending to SMEs are due to be launched later this year. The Economy Ministry has yet to finalize details on the new regulations and is hoping it will work together with local banks on the issue. "The ministry is aware of the shortage of cash, so it is going to co-finance financial institutions' support of SMEs on a competitive basis, so money will be granted to the most efficient ones," said Stefan Drygas, deputy director with the ministry.
Polish SMEs are not as competitive as similar businesses in the European Union (EU), where the sector is firmly rooted. "An average small business in Poland is 10 times smaller compared to the EU, so Polish programs designed to promote the sector should include this specific feature," Kwiatkowski said.
Polish small businesses also have more limited access to special financing programs that encourage development in the sector. "There are so many programs from which SMEs can benefit, but the total budget for SMEs envisaged for 2001-2005 amounts to E50 million," said the EU's Jeremy Heath in Warsaw last week.
