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NATIONAL BANK OF ROMANIA Survey on the access to finance of the non-financial companies in Romania and their capacity to cope with adverse financial conditions June 2014 Executive summary According to companies, their general economic indicators and the indebtedness level remained widely unchanged, while profitability decreased during October 2013 - March 2014. In the companies’ opinion, access to finance does not represent a high important challenge. The most significant difficulties reported by the companies in conducting their activities are: the level of taxation, the competition and finding customers. A relatively small percentage of the companies opted for bank financing, whilst the majority of them used internal sources of finance in the period between October 2013 and March 2014. The perceptions about the financing conditions supplied by the financial institutions remained unchanged compared with the previous semester. The most significant obstacles for companies to access financial resources from banks and/or non-bank financial institutions (NFIs) are: high level of the interest rates and bank fees, the requirements regarding the value or type of collateral, and the bureaucracy burden. Firms reported that most part of their credit applications to banks and/or non-bank financial institutions ended successfully in the analyzed period. Using European funds for developing the business remains a weak option among the Romanian firms. Firms outline that their capacity to cope with adverse financial evolutions regarding the exchange rate or the interest rate is not adequate. A large part of the companies having bank loans consider they are already hurt by the current level of the interest rate (whatever the currency of the loan). The majority of the firms choose to cutback their indebtedness level due to the financing cost. 2/19 A. Access to finance of non-financial companies (A1) The evolution of the main economic indicators in the period between October 2013 and March 2014 Most of the companies reported that turnover and labour costs remained fairly constant in the period October 2013 - March 2014. A significant part of the firms reported a decline in profit and profit margin respectively (see Chart 1). The overwhelming majority of the companies reported no changes concerning the loan cost expenditures (84 percent). Chart 1: Evolution of the main financial indicators for nonfinancial companies in the period October 2013 - March 2014 90 percentage in total 80 Increased 70 Remained fairily constant 60 Decreased 50 40 30 20 10 Profit margin (net profit divided by turnover) Profit (net profit, after tax deduction) Monthly expenditure with credit cost Other costs (production costs: materials, energy, etc.) Labour costs Turnover 0 In structure, depending on the size of the company, large firms reported figures which denote an economic and financial performance superior to the other companies in the sample (similar to the results of the previous survey). Depending on the business sector, the companies in the agriculture sector recorded, on balance, a better evolution than the companies in other business sectors (Chart 2). The companies in high-tech 1 sectors registered economic results inferior to those in low-tech sectors. At the same time, the companies in knowledge intensive sectors performed better in terms of turnover compared to those in less knowledge intensive sectors. The data regarding the indebtedness level of the companies shows no major changes in comparison with the previous survey period (April – September 2013). For the majority of the companies, the debt-to-assets ratio (the leverage ratio) remained unchanged (around 53 percent), Chart 3. 1 High-tech sectors refer to those sectors in which intensive activities are unfolded in technology. In the present case, hightech sectors include also the medium-high-tech sectors. Low-tech sectors refer to those sectors in which low intensive activities are unfolded in technology. In this case, low-tech sectors include also the medium-low-tech sectors. Knowledge intensive sectors refer to those sectors in which intensive activities are unfolded in knowledge. Less knowledge intensive sectors refer to those sectors in which low intensive activities are unfolded in knowledge. 3/19 Chart 2: Evolution of the main financial indicators in the period October 2013 - March 2014, by main business sectors Chart 3: Evolution of debt-to-assets ratio for nonfinancial companies in the period October 2013 March 2014 60 50 percentage in total 40 30 20 10 0 It increased It remained It decreased The constant company does not hold debt The most pressing problems faced by companies in the period October 2013 – March 2014 In comparison with the previous survey round, the perception of the companies regarding the most pressing problems faced in their activity in the period between October 2013 and March 2014 did not change. Globally, the scale of impact of these problems faced by companies did not suffer modifications. The top 3 issues mentioned were High taxation, Competition and Finding customers (being seen as pressing problems by 81 percent of the firms, 47 percent and 46 percent respectively). Access to finance represents a concern for around 19 percent of the companies (Chart 4). Chart 4: The most pressing problems of non-financial companies in the period October 2013 – March 2014 90 percentage in total 80 pressing moderate less pressing 70 60 50 40 30 20 10 2 High taxation Payment discipline Insolvency procedure Regulation Availability of skilled staff Production costs, labour costs, etc. Access to finance Competition Finding customers 0 According to Annex: Methodological information on the survey 4/19 In structure, developments were mixed. Access to finance was less of a concern for large firms and exporting companies (compared with total companies). The companies in the agriculture sector perceived access to finance as a problem of higher intensity compared with those in other business sectors, although the first ones were leaders in the percentage of companies which apply to bank loans, depending on the business sectors of activity. The firms with loans2 considered that the problems faced (except for Finding customers) were felt with higher amplitude than by those without loans3. A significant difference of perception occurs in case of the Payment discipline, this issue having probably a high impact on the capacity to meet the debt service by the companies with loans (Chart 6). Chart 5: The most pressing problems of SMEs and large companies in the period October 2013 – March 2014 Chart 6: The most pressing problems of nonfinancial companies with and without loans in the period October 2013 – March 2014 Note: the percentage in total refers to the number of companies that graded the problem as being pressing or very pressing in the total number of respondent companies (question with grading scale from 1 – the most pressing problem, to 5 – the least pressing problem) Note: the percentage in total refers to the number of companies that graded the problem as being pressing or very pressing in the total number of respondent companies (question with grading scale from 1 – the most pressing problem, to 5 – the least pressing problem) (A2) Availability of sources of financing Main sources of financing for companies in the period October 2013 – March 2014 The firms signaled a relatively significant use of internal sources of financing, especially Retained earnings or sale of assets (44 percent of the respondents). The access of bank financing remains modest, the demand for bank loans registering a decrease compared with the previous survey round (18 percent of the companies used at least one banking product in the period October 2013 – March 2014 in comparison with 21 percent in the period April – September 2013). While small and medium enterprises followed the overall development, large firms accessed bank loans prevailingly (52 percent), used financial leasing more than SMEs and internal financing less (35 percent of the large companies reinvested the profit or sold assets in order to finance their activity) (Chart 7). 3 According to Annex: Methodological information on the survey 5/19 The capital market financing remains extremelly reduced. No corporation used this source in the period from October 2013 to March 2014 and an extremely low number of SMEs issued shares or obligations in this interval. Chart 7: Main sources of financing of firms in the period October 2013-March 2014, for SMEs and large companies Chart 8: Main sources of financing of companies in tradables and non-tradables sectors, in the period October 2013-March 2014 The companies in the agriculture sector and industry applied mostly for bank loans (34 percent of the firms in the agriculture sector, 25 percent of the companies in the industry sector respectively), whereas the firms in the sectors of services and utilities used retained earnings or sale of assets prevailingly for financing their operations (47 percent), Chart 9. The companies doing business in tradables sectors 4 accessed more loans from banks, financial leasing or commercial loans than the firms that do business in non-tradables sectors. This positive trend, noted also in the previous survey round, may indicate a sustainable economic growth sustained by the financial system and other economic agents, Chart 8. 4 Tradables sectors cover companies in agriculture, hunting and forestry, industry and energy and might as well encompass companies providing international transport, communication, external travel services etc. but the available statistics do not allow a clear and precise identifi cation of the mentioned fi rms. Non-tradables sectors include companies in construction, trade and services and transport, warehousing and communications. 6/19 Chart 9: Main sources of financing of companies in the period October 2013-March 2014, depending on business sectors Evolution of the main sources of financing of the companies in the period October 2013 March 2014 and perspectives for the period April – September 2014 The majority of the companies that accessed financing declared that the use of internal or external financing remained fairly constant in the period October 2013-March 2014. This result confirms the expectations indicated in the previous survey. The companies reported, on balance, that the availability of the sources of financing will also be maintained constant for the next 6 months (April - September 2014), Chart 10 and Chart 11. Chart 10: Evolution of the main sources of financing of non-financial companies in the period October 2013-March 2014 Remained fairily constant Financial leasing or factoring Trade credit Investment loan Cash flow loan Decreased Retained earnings or sale of assets Loans from shareholders or equity funding Bank overdraft, credit lines or credit cards overdraft 100 90 80 70 60 50 40 30 20 10 0 Increased percentage in total The company did not need this type of financing 7/19 Chart 11: Perspectives of evolution of the main sources of financing of non-financial companies in the period April-September 2014 In the case of companies that signaled changes, the net percentage indicated a marginal increase of the access to internal financing in the last 6 months, and a slightly decrease of the availability of all the financing sources for the next 6 months, except for retained earnings or sale of assets. Large companies registered a higher increase of the availability of all sources of financing, in comparison with the data reported by SMEs, in the period October 2013March 2014. Depending on the business sector, the net percentage points out the fact that the companies in construction and real estate sectors reported a slight increase of the use of all financing sources in the period October 2013-March 2014, whereas mixed developments were observed in the other sectors. In the agriculture sector a marginal increase of the investment loan was noticed in the last 6 months (6 percent in net percentage). Destinations of the financing accessed by non-financial companies in the period October 2013-March 2014 At aggregate level, the main destination of the financing accessed by firms in the period from October 2013 to March 2014 was Working capital or payment of suppliers (34 percent of the respondents). Large companies directed the sources of financing towards Working capital or payment of suppliers more than SMEs (50 percent of the large companies compared to 35 percent of the SMEs), but they also channeled financing towards Investments for business development more than SMEs (28 percent of the large companies compared with 10 percent of the SMEs), Chart 12. Chart 12: Main destinations of the financing accessed by SMEs and large companies in the period October 2013-March 2014 Chart 13: Main destinations of the financing accessed by companies in high-tech and low-tech sectors in the period October 2013-March 2014 8/19 The companies in high-tech sectors directed the sources of financing towards Investments for innovation purposes more than those in low-tech sectors (6 percent compared with 1 percent), Chart 13. An important part of the financing accessed by the companies in the agriculture sector was directed towards Investments for business development and Investments for innovation purposes (25 percent, respectively 5 percent of the companies doing business in agriculture). Companies’ success rate in accessing finance from banks and non-bank financial institutions in the period October 2013 – March 2014 Most of the companies included in the sample did not use financing from banks and/or nonbank financial institutions in the analyzed period, similar to the previous survey (around 70 percent of the respondents). Chart 14: Success rate of SMEs and large companies in accessing finance from banks and non-bank financial institutions in the period October 2013 – March 2014 A significant proportion of the loan applications to banks and/or non-bank financial institutions were successful for companies (around 73 percent of the companies that applied for a loan). In structure, large companies’ appetite for bank loans, in addition to their success in contracting loans in full or partial amount, stand out (around 49 percent of the large firms), Chart 14. Significant differences were noted between the number of companies with foreign trade activity that applied for and contracted loans, on the one side, and the overall situation, on the other side (around 43 percent of the exporters and 41 percent of the importers accessed bank loan financing). Companies in the agriculture sector and companies in the tradables sectors reported a higher success rate than the overall companies in accessing financing from banks and/or non-bank financial institutions. 9/19 Companies’ access to European Union funding Almost 3 percent of the companies included in the sample declared that they accessed EU funding since the period these funds were available until the beginning of the period October 2013 – March 2014. The structure of companies’ answers regarding access to EU funding remained broadly unchanged. Chart 15: Access to EU funding by SMEs and large companies in the period October 2013-March 2014 Companies in tradables sectors showed a higher openness towards developing businesses using EU funding. Moreover, large firms accessed these financial resources in a higher proportion than SMEs (Chart 15). By business sectors, the highest performance in accessing EU funds was registered by the companies in agriculture, at the opposite side being the companies in the trade sector. From the Europe 2020 strategy perspective, the answers reveal the fact that high-tech and low-tech companies applied to EU funding in equal proportions, whereas the knowledge intensive companies showed a higher interest in accessing nonreimbursable community funding than the less knowledge intensive companies. (A3) Conditions and influencing factors regarding companies’ access to finance Companies’ relationship with banks and non-bank financial institutions and their perception on the terms and conditions in the period October 2013 – March 2014 The number of the companies without loans from banks and/or non-bank financial institutions rose compared with the previous term (71 percent in the period October 2013March 2014 in comparison with 65 percent in the previous survey round). For the analyzed period, the relative equality of the number of improving perceptions of the relationship with banks and non-bank financial institutions and the number of worsening perceptions was maintained (Chart 16). In structure, the highest percentages of the companies with loans were numbered amongst large firms and companies in the agriculture sector. At the opposite side, there were SMEs and companies in the services and utilities sectors. 10/19 Chart 16: Relationship of non-financial companies with banks and non-bank financial institutions in the period October 2013-March 2014 Chart 17: Perception of non-financial companies with loans regarding the terms and conditions imposed by banks and non-bank financial institutions in the period October 2013-March 2014 Most of the companies with loans from banks and non-bank financial institutions signaled no changes in the conditions of the loans granted. The difference between the number of the firms that reported a worsening of the conditions and the number of those that reported an improvement of the conditions is minor, except for the perception on the requirements regarding the collateral’s value or type. In this respect, the weight of those that signaled an increase is highly superior to those that signaled a decrease (Chart 17). Chart 18: Non-financial companies’ reasons for applying for loans from financial institutions in the period October 2013-March 2014 11/19 The most frequent reason, of companies that applied for loans, to choose a certain financial institution, in the last 6 months, was the business relationship between the firms and those institutions (46 percent of the companies with loans), Chart 18. In case of large firms, on balance, this answering option was chosen in a higher proportion than in the case of SMEs or at aggregate level. The main difficulties faced by companies in accessing financing from banks and NFIs in the period from October 2013 to March 2014. The too high a level of interest rates and bank fees, the value or type of collateral, the contractual clauses and the bureaucracy of the credit process, represent, in this order, the most important obstacles for companies in accessing financial resources from banks and/or NFIs. Chart 19: The difficulties faced by non-financial companies with loans in accessing financing from banks and NFIs, in the period from October 2013 to March 2014 Chart 20: The difficulties faced by non-financial companies, with and without loans, in accessing financing from banks and NFIs, in the period from October 2013 to March 2014 Note: the percentage in total refers to the number of companies that reported the difficulty as being significant or highly significant in total number of respondent companies (a question with grading scale from 1 - very big to 5 – very small or without impact) The impact of these terms affected mostly the companies which already had loans, while the companies which did not access financing from banks and/or NFIs were relatively neutral at these conditions imposed by financial institutions (Chart 19 and Chart 20). The situation observed at aggregate level was observed for SMEs too, while large companies were more affected by these difficulties. 12/19 B. The companies’ capacity to cope with adverse financial developments (B1) The companies’ perception of regarding unfavorable evolution of financing cost (interest rate) The perception on financing cost influence (March 2014) A great part of firms (30 percent of respondents) considered that the current level of the financing cost already affected the activity or the capacity of a company to reimburse the loan, while, 12 percent of respondents said that the level of financing cost would not affect their activity. The majority of companies did not need loans from banks or NFIs (54 percent) (Chart 21). Chart 21: The financing cost for non-financial companies, in March 2014 The availability of companies to reimburse a certain amount as the monthly cost of a loan, in quantitative terms, is heterogeneous, due to the different financial situations of firms. Thus, SMEs would be willing to pay a monthly amount of 5500 lei (the median of values indicated by SMEs), whereas the large companies would be willing to pay a monthly amount of 100 000 lei (the median of values indicated by large companies). The perception on a maximum bearable level of interest rate of credits (March 2014) The majority of companies said that their main intention was to reduce their leverage rate, so the firm would not take any loans in future, irrespective of the cost (52 percent of companies with loans denominated in lei and 57 percent of companies with loans denominated in euros). The percentages increased compared with the survey results from September 2013. The greater part of firms showing their interest in applying for loans said that they would do this only in case of a very low cost of financing (between 0,1 percent and 3 percent for both loans denominated in lei and for loans denominated in euros). Unlike SMEs, which reflect the aggregate level trend, large companies could bear greater interest rates, especially for financing in national currency (27 percent of large companies indicated a maximum interest rate between 3 percent and 8 percent for loans denominated in lei and 15 percent of large companies indicated a maximum interest rate between 3 percent and 5 percent for loans denominated in euros). 13/19 The perception regarding a possible unfavorable evolution of interest rates (March 2014) The majority of companies with loans in national currency had on average an interest rate between 9 percent and 11 percent for loans denominated in lei 5 and the majority of companies with debt in euros 6 had on average an interest rate between 5 percent and 7 percent, the companies stating also that they were already affected by these interest rates levels. The great majority of SMEs with loans denominated in lei bore a monthly interest rate between 9 percent and 11 percent for their loans (28 percent of SMEs with loans in lei). The most important share of large companies with loans in lei had an average interest rate below 7 percent (46 percent of large companies with lei loans) (see Chart 22). The majority of SMEs (28 percent of SMEs with foreign currency loans) had an average interest rate for loans denominated in euros between 5 percent and 7 percent. The bulk of large companies had an average interest rate for loans denominated in euros between 3 and 5 percent (46 percent of large companies with loans in euros)(see Chart 24). Credit risk, unsatisfactory payment discipline and the reduced negotiation power of SMEs could explain those differences made by banks through the financing cost. Chart 22: The average interest rate of loans Chart 23: The perception of non-financial denominated in lei for non-financial companies on a future possible change of interest companies with credits in lei, in March 2014 rate for credits denominated in lei, in March 2014 Large companies indicated a better capacity to cope with a possible increase of interest rates, both in national currency and in euros, as well (an impact between 1 and 3 basis points was the easiest to bear). The SMEs said that they were already affected by the current level of interest rates, irrespective of the currency of denomination (see Chart 23 and Chart 24). The situation was similar with that identified at the previous survey (September 2013). The companies in high-tech sectors had relatively higher interest rates for loans denominated in lei (33 percent indicate an average rate between 11 percent and 13 percent) compared with the companies in low-tech sectors (33 percent indicate an average rate between 9 percent and 11 percent) and they were more sensitive to possible future shocks of increase in interest rates. 5 6 See Annex: Methodological information on the survey See Annex: Methodological information on the survey 14/19 Chart 24: The average interest rate of loans Chart 25: The perception of non-financial denominated in euro for non-financial companies regarding a future possible change in companies with loans in euros, in March 2014 interest rates for loans denominated in euros, in March 2014 (B2) The companies’ perception regarding an unfavorable development of the exchange rate of the national currency against the euro The perception regarding a possible national currency depreciation (in March 2014) The majority of companies considered that the current exchange rate level of leu against the euro affected their activity (53 percent of respondents), while 14 percent of firms said that would be affected by a slight depreciation of national currency of 0,1 percent. The large companies, in relative terms compared with SMEs, could support better a possible important national currency depreciation, of a maximum of 15 percent (see Chart 26). The importing firms7, large companies especially, considered that the national currency was sufficiently depreciated in order for their activity to be affected or that a depreciation of 0,1 percent would significantly affect their activity, the situation being more problematic in case of companies with loans denominated in euro. The exporting firms8 considered, also, that a significant level of depreciation of the national currency would negatively affect their activity (Chart 27). The opinions were in line with those given at the previous survey, taking into account the modest change of the exchange rate compared with the moment of the previous research (September 2013). 7 Importers were chosen to be foreign trade companies which realized net import (trade deficit), and the value of their imports was over 100.000 euros in each quarter of year 2013. 8 Exporters were chosen to be foreign trade companies which realized net export (trade surplus), and the value of their exports was over 100.000 euros in each quarter of the year 2013. 15/19 Chart 26: The perception regarding a possible Chart 27: The importers’ (SMEs and large national currency depreciation, of SMEs and companies) perception regarding a possible large companies, in March 2014 national currency depreciation, in March 2014 The perception on a possible national currency appreciation (in March 2014) Companies considered that the appreciation of the national currency against the euro was more tolerable than the depreciation, 31 percent of respondents indicated that the current level of the exchange rate already affected them in terms of appreciation. The large companies would be more affected by an appreciation of the exchange rate between 0,1 percent and 15 percent, while the majority of SMEs were not content with the current level of the exchange rate (see Chart 28). Chart 28: The perception regarding a possible Chart 29: The exporters’ (SMEs and large national currency appreciation, of SMEs and companies) perception regarding a possible large companies, in March 2014 national currency appreciation, in March 2014 Except for exporters, who consider that they are already affected by the current exchange rate level, the greater part of exporting SMEs would be affected by an appreciation higher than 8 16/19 percent (21 percent of importing SMEs), while 16 percent of exporting large companies, would be affected by a slight appreciation of 0,1 percent (Chart 29). 17/19 Annex: Methodological information on the survey The survey is conducted semiannually by NBR in March and September. The survey is based on a questionnaire sent to a sample of nearly 10.000 non-financial companies, from which around 80 percent are SMEs, large firms being included exhaustively. The sample, representative at the national level, is selected through statistical processes, using the following criteria: - firm size class (micro firms, small firms, medium-sized firms and large companies); - business sector, according to NACE classification (two digits); The questionnaire is structured into two sections, as follows (A) Romanian enterprises’ access to finance and (B) the non-financial companies’ capacity to cope with adverse financial developments in the interest rate and the exchange rate). The questions aim to gather the companies’ opinions regarding: the general economic outlook of firms; the availability of financing sources, the conditions and factors regarding the access to finance of companies, the companies’ perception regarding the unfavorable evolutions regarding the cost of financing (interest rate), the companies’ perception regarding the unfavorable evolutions of the exchange rate of the national currency against the euro. The analysis of answering options The answering options in the questionnaire are analyzed in the following ways: a) For questions with a grading scale three types of analysis are used: - the analysis of answering options separately for grades indicating a positive dynamics, for grades indicating a lack of dynamics and for notes indicating a negative dynamics; - the analysis of answering options only for grades indicating a certain dynamic; - the analysis of the net percentage (the difference between the share of companies reporting an evolution/problem as being upward/significant and the share reporting an evolution/problem as being downward/insignificant) b) For multiple choice questions or single choice questions: the share of companies which chose a certain answering option in total number of respondents. Regarding question „A1. How would you assess the evolution of the company's following financial indicators, in the past 6 months?”, the net percentage represents the difference between the share of companies indicating an upward development of an indicator and the share of companies indicating a downward development of that indicator. A positive net percentage would indicate an improvement of turnover, profit or profit margin or a worsening of labour costs, of other costs or of monthly expenditure with cost of credit. Regarding question „A2: What are the most pressing problems your company faced in the past 6 months?”, the net percentage represents the difference between the share of companies indicating a problem as being significant and the share of companies indicating a problem as being unimportant. A positive net percentage means that a certain problem is significant. 18/19 Regarding question „A8: What is your opinion regarding the evolution, in the past 6 months, of the terms and conditions applied by banks and non-bank financial institutions to loans you have in stock?”, the net percentage represents the difference between the share of companies indicating a tightening of conditions and the difference between the share of companies indicating a relaxing of conditions. A positive net percentage indicates that a certain condition became more stringent. Regarding questions „A9: Please indicate how the availability of the following sources of financing for the company evolved in the past 6 months?” and „A10: Please indicate how you believe future availability of the following sources of financing for the company will evolve in the next 6 months?”, the net percentage represents the difference between the share of companies indicating an increase of availability of a certain source of financing and the share of companies indicating an decrease of availability of that source of financing. A positive net percentage means that the availability of a certain source increased (A9) or will increase (A10). The opinions cover the evolution over the previous six months and the expectations regarding the next six months. The definition of companies with loans and of companies without loans 1. The separation of companies into companies with loans and without loans was realized using the answering option „d. You do not have loans”, of to the single choice question „A7. How do you perceive your relation, in the past 6 months, with the banks and non-bank financial institutions from which you obtained loans (ongoing loans irrespective of age)?”. The companies that chose the answering option d) were considered firms without loans, and the rest of the companies, which chose (other options from the question above, were considered companies with loans. 2. The separation of companies into companies with loans denominated in lei and without loans denominated in lei was realized using the answering option „f. The company does not have loans denominated in lei (including leasing)”, of the single choice question „B5. Between what values would you place the average interest rate on your current loans denominated in lei?”. The companies which chose the answering option f) were considered firms without loans denominated in lei, and the rest of the companies, which chose other options from the question above, were considered companies with loans denominated in lei. 3. The separation of companies into companies with loans denominated in euro and without loans denominated in euro was realized using the answering option „f. The company does not have loans denominated in euro (including leasing)”, of the single choice question „B7. Between what values would you place the average interest rate on your current loans denominated in euro?”. The companies that chose the answering option f) were considered firms without loans denominated in euro, and the rest of the companies, which chose other options from the question above, were considered companies with loans denominated in euro. 19/19