The 2013/05/22 at 08:13
Marie Luginsland, in Germany
Historically low interest rates and intensified bank competition make up a financial environment currently favourable for German companies. Only 15 % of them, including those with fewer than 500 employees, declare encountering financing difficulties today. This observation, emerging from a survey conducted by the DIHK, the federation of German Chambers of Commerce, is accompanied by a more sombre one: Basel III darkens the futures of German company heads who fear being caught up by this new regulatory framework aimed at the banking sector, introducing stricter restrictions for capital and liquidity.
According to a forecast by the Federation of SMEs and Family-Structure Companies (BVMW*), for a 10 million-euro loan, Basel III would increase requirements for common equity by 250 % and equity needs by 112 %, in other words, respectively by 700,000 euros and 850,000 euros! Relying on a study by the Universities of Berlin and Wuppertal, the BVMW states that Basel III will lead to a 2.74 % drop in the volume of loans granted. As well as cutting the economic performance of SMEs by 2 %!
Towards capital erosion
SMEs, especially start-ups, are the first to fear that they can no longer rely on their banks for long-term financing. These uncertainties are voiced even more strongly by companies with a strong R&D element needing significant hi-tech investments, or else companies with less than ten employees, the main source of job creations. For these companies, Basel III complicates and eliminates the possibility of loans to finance their development. “The consequence is that these companies will need to finance their investments and innovations with their own equity,” note Marc Evers and Sebastian Schütz in the conclusion of the DIHK survey.
In addition, other more traditional branches also express their concern regarding the effects of Basel III, namely the risk of being refused long-term loans necessary for the purchase of production goods for example.
Already, automobile manufacturers and the media/new technologies sector claim to have suffered a slowdown in sales and greater market pressure, which may have a long-term effect on their financial potential. Aeronautic and shipping manufacturers also attest to a recent reticence of banks to grant them significant long-term loans. Even the all-powerful mechanical construction sector is worried.
For now, all these companies have adequate equity and liquidity – two “war chests” allowing them to get over the crisis. According to the
Bundesbank, 28.2 % of companies have equity-to-total assets ratios upward of 30 %. But this does not prevent them from fearing an erosion of their financial security in the face of the threat represented by Basel III.
A first victory
These fears do not date from yesterday. In 2011 already, an SME grouping had pinpointed the risks implied by the application of Basel III. Beyond the risks weighing on long-term financing, these SMEs had denounced the consequences on export and trade activities in general, by making bank guarantee systems more fragile.
German SMEs have nevertheless carried off a first victory. The German government has committed “to taking into consideration, in the national application of the regulatory framework, the specificities of small and medium-sized enterprises as well as savings funds,” rejoices Mario Ohoven, President of the BVMW. What remains to be achieved now is for the application calendar to be respected so that the banking sector can be stabilised – before the German legislative elections in September.
*Bundesverbandes mittelständische Wirtschaft