By: Fred Soers
After the Dutch business sector emerged from the Corona crisis better than anyone had previously thought possible, serious problems now seem to be brewing. Larger companies, and multinationals in particular, seem to be escaping recession. Indeed, many large companies are taking advantage of the uncertain business cycle by implementing reorganisations. As a result, fixed costs fall and share prices generally rise. Everyone happy.
For SMEs, the situation is different. They faced business stoppages and the temporary loss of a substantial part of turnover during Corona. The Dutch government assisted in 2020 and 2021 with various concessions and allowed SMEs to temporarily defer sales and payroll taxes. Since the second half of 2022, the situation normalised and a start had to be made on repaying the deferred taxes and any excess NOW subsidy received.
Unfortunate moment
All this comes at a most unfortunate time. Due to the war in Ukraine and, as a result, sharply increased prices of raw materials and energy, companies' profits are falling. Since SMEs typically operate with less equity, many of them cannot absorb this. One solution could be to raise additional bank credit to meet repayments to the tax authorities. But therein lies another major problem. Major Dutch banks are increasingly withdrawing from the SME market. According to DNB, lending by the 3 major Dutch banks to SMEs has declined by as much as 39% over the past 10 years. This is due to tightened credit conditions and the high cost of lending to smaller companies.
SME State Bank?
Since the end of last year, there have been regular political voices suggesting that it would be a good idea to set up an SME State Bank. This often refers to the Volksbank, which was nationalised 10 years ago during the banking crisis. This political hot air balloon seems to me doomed to fail and is also not at all suitable to fill the gap left by the big banks. If commercial financiers are not willing to finance a group of companies, then a tax-funded state-owned bank certainly should not start doing so. Not to mention the expected syrupy decision-making at such a state-owned bank. Or what about the unfair competition it causes.
Zombies
We will have to realise that the number of bankruptcies will increase over the next few years. In part, by the way, this is a natural catch-up because relatively very few companies went bankrupt in the past three years. The so-called zombie companies will have to disappear to re-create a healthy business landscape with a level playing field. Companies that were not viable before Corona will certainly not be now.
Forget it!
More importantly, new financiers are jumping into the gap left by the big banks every month. These new parties, often Fintechs, use modern techniques like Artificial Intelligence to assess credit applications. They are often platforms that operate with much lower overheads and can therefore earn earlier on smaller loans. This ranges from factoring, crowdfunding to direct lending. I am convinced that by the time a possible State Bank is operational, the gap will have been fully filled by new commercial parties. Therefore, let's forget about that State Bank!
