Response to discussion Paper and Call for Evidence on SMEs and the SME Supporting Factor

Go back

Q1: Do you have systems in place to track the reduction in capital due to the application of the SME Supporting Factor (capital relief)? Yes/No. Please explain and provide evidence.

NA

Q2: In your experience, is the reduction in capital requirements due to the application of the SME Supporting Factor (capital relief) being used to support lending to SMEs? Yes/No. Please explain and provide evidence.

NA

Q3: Is your internal definition of SMEs in line with the definition of SME exposures subject to the SME Supporting Factor? Yes/No. If no, how are you reconciling the internal definition of SMEs with the definition of SMEs subject to Supporting Factor? Please explain and provide specific examples.

NA

Q4: In monitoring the total amount owed to you, your parent and subsidiary undertakings, including exposures in default, by the borrower and its group of connected clients (as defined in CRR Article 4(1)(39)), what reasonable steps do you take to ensure that amount does not exceed EUR 1.5 million in accordance with Article 501(2)(c)?

NA

Q5: Do you see merits in having a harmonised definition of SMEs for reporting purposes? Yes/No. Please explain and provide specific examples.

NA

Q6: Do you agree with the proposed measures of SME riskiness? Yes/No. Are some of these measures more relevant than others? Yes/No.

NA

Q7: Are other aspects relevant in your assessment of the creditworthiness/riskiness of potential SME borrowers? Yes/No. If yes, please provide a list of those aspects and explain how you measure SME riskiness.

In addition to the five financial ratios identified by the EBA for assessment of the riskiness/creditworthiness of SMEs by Banks (profitability, leverage, activity, liquidity and coverage), two other important elements used in the assessment are financial data and trade credit data on the SME collected by credit bureaus and business information providers.
Both of these data sources can be highly predictive of SMEs' creditworthiness and are widely used by lenders in their assessment of lending to SMEs. In practice the data is incorporated into credit or payment scores offered by the credit bureaus or business information providers. Such scores play a very important role in helping lenders in their assessment of SME riskiness, as often it is very difficult and costly for lenders to gain accurate risk insights on SME borrowers, because data such as financial ratios on liquidity, profitability and other aspects typically used for assessment of the riskiness of companies is simply not available for SMEs (especially the smaller companies).
The following data is typically incorporated in credit or payment scores, used by lenders in assessing SMEs' creditworthiness:
• Basic company information (name, legal form, address, number of employees, year of foundation, industry sector, etc.)
• Delinquency rate
• Mix of credit typologies
• Ratio of outstanding vs. granted debt
• Credit Mobility (the ratio of new versus closed credit lines)
• Percentage of the granted amount covered by collaterals
• Typology of collaterals
• Consumer information about SME stakeholders (e.g. directors, owners)
• Negative information such as insolvency proceedings, data of collecting agencies
• Information on existing accounts (e.g. at banks, telecommunication providers)
• Information on payment and liquidity of customers and business partners
• Trade credit information – payment behavior with suppliers
• Usage: the number, type, duration and scope of credit transactions with credit risk
• Length of credit history: possible indication of experience in dealing with financial obligations
• Macro-economic information (economic situation/seasonal influences/market situation in the industry, unemployment rate, interest rate environment, oil price, import prices, etc).
Credit and payment scores based on the above information serve as a highly predictive and cost-effective tool for assessment of SME riskiness. They are widely used in practice by lenders and enable them to accurately estimate the credit risk for their SME credit portfolios, and grant loans to SMEs which otherwise would not been available due to the lack of data on the traditional riskiness factors (profitability, leverage, activity, liquidity and coverage).
BIIA would like to thank the EBA for the opportunity to respond to this Discussion Paper and Call for Evidence.

We remain at your disposal, should you be interested in discussing our response in more detail. For any questions regarding our response please contact Joachim Bartells, Managing Director at : the secretariat of the association at: biiainfoasia@gmail.com.
Information on BIIA

BIIA is a non-profit trade association representing the business information industry. BIIA has global membership of 55 information companies of which 25 operate in the European Union. Our association actively cooperates with the other European information industry associations such as the Association of Consumer Credit Information Suppliers (ACCIS) and the Federation of European Business Information Services (FEBIS).

Q8: In your experience, are SMEs as cyclical or more/less cyclical than large enterprises?

NA

Q9: Do you agree with the proposed methodology to assess the own funds requirements in relation to SME riskiness? Yes/No. If no, please provide alternative methodologies or indicators, if available.

NA

Q10: Did the arrears and loss experience in 2009/2010/2011 exceed an (internal) limit? Yes/No. Were (expected/unexpected) losses adequately covered by loan loss provisions? Yes/No. Please explain and provide specific figures.

NA

Q11: Do you agree with the above interpretation of statistical data on lending trends and conditions? Yes/No. If no, please explain.

NA

Q12: Since 1 January 2014, have you changed your SME credit lending and assessment policies and procedures, specifically as a result of the introduction of the Supporting Factor? Yes/No. If yes, please explain and provide specific examples.

NA

Q13: Have changes to your SME credit lending and assessment policies and procedures been driven by other factors (e.g. competition from alternative sources of SME financing as described in section 4.1)? Yes/No. Please explain and provide specific examples.

NA

Q14: In your experience, is there an impact of the SME supporting factor on the volume of SME lending compared to other loans? Yes/No. Please explain and provide evidence.

NA

Q15: In your experience, is there an impact of the SME supporting factor on the pricing and overall conditions of SME lending compared to other loans? Yes/No. Please explain and provide evidence.

NA

Q16: Do you consider SMEs are a consistent group when it comes to access to credit or should a distinction be made between different types of SMEs (e.g. micro, small and medium ones)? Yes/No. Please explain and provide specific examples.

NA

Name of organisation

BIIA