Thursday, 7 July, 2022

SME loans hit new high amid Covid-19 pandemic: OECD

SME loans hit new high amid Covid-19 pandemic: OECD

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Outstanding loans of small and medium enterprises in 48 countries surveyed by the Organisation for Economic Co-operation and Development jumped significantly in 2020 — the first year of the Covid-19 pandemic, a report has shown.

The outstanding loan is the debt that SMEs owe to creditors or financial institutions.

The average stock of SME loans surged by 4.9 per cent in 2020, the highest annual increase since the OECD started recording the figures about 10 years ago, the Paris-based agency said in its latest report, report agencies.

Outstanding loans had grown at an average annual rate of 1.2 per cent during 2015-2019 period.

The increase in 2020 was underpinned by an increase in government-led loan guarantees that rose 110 per cent annually that year, the debt moratoria, as well as direct lending to SMEs, which soared 17 per cent on an annual basis, the report revealed.

The OECD’s latest report offers insights on SME financing trends and policies for 48 countries, including OECD member countries, for the period 2007 through the first half of last year.

“Support measures and favourable lending conditions have left many SMEs with higher levels of debt that will need to be tackled going forward,” OECD Secretary General Mathias Cormann said.

Emergency support measures — including monetary policy interventions by central banks — also pushed interest rates down to record lows, with the median SME interest rate falling by 0.4 percentage points in 2020, the largest reduction since 2009.

In most economies covered by the report, unprecedented support measures also helped avoid a wave of insolvencies.

“The majority of support measures was broad-based and accessible to all SMEs … this enabled most enterprises to continue to operate … bankruptcies declined in the majority of countries in 2020, with the median bankruptcy rate down by 11.7 per cent,” the OECD said.

Alternative sources of finance, which SMEs had been utilising before the crisis, declined in 2020. For example, the drop in both leasing and factoring was “unprecedented” during the pandemic.

“The decline in leasing represented a reversal of the pre-crisis positive trend, while the drop in factoring intensified the pre-crisis slowdown of this activity,” the report said.

“SMEs need better access to alternative financing instruments to reduce their dependence on debt and provide greater flexibility and resilience in these volatile economic times,” Mr Cormann said.

The pandemic, which upended the global economy and shuttered many small businesses, resulted in widespread lockdowns and supply chain disruptions that affected SMEs worldwide.

The global economy declined 3.5 per cent in 2020 as movement restrictions depressed demand and introduced disruptions in value chains. It hit developed and developing countries alike, with almost all economies reporting negative growth, the report said.