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Banks turn to small business lending
The small business lending market is set to grow by 40-70 percent in 2008
St. Petersburg banks expect to increase their lending programs this year, focusing on small and mid-sized businesses. The city’s lending market for small businesses is projected to grow by 40-70 percent in 2008. Competing for clients, banks will ease collateral requirements and extend loan periods.
In many regional banks, loans to small businesses account for 40 to 90 percent of their credit portfolios, according to the Association of Russian Banks. But there are no separate statistical records for lending to small businesses. In 2007, the North-West Association of Banks analyzed the data provided by 48 banks and calculated that a total of RUB 229.47 billion (approx. $9.7bn) had been lent to the regional businesses last year.
“Lending programs for small businesses are set to increase, we expect the market to grow by 40-70 percent in 2008,” said Vitaly Demidov, manager of Absolut Bank’s St. Petersburg branch. His bank increased lending to small businesses by 34.4 percent in the first three months of this year, issuing RUB 67.72 million (approx. $2.86m) worth of loans. The St. Petersburg branch of KMB-Bank also expanded its small business loan programs, granting $21 million worth of loans in the first quarter of 2008, against $12.5 million throughout the whole of 2006.
Baltinvestbank, which launched its small business loan program in April 2007, plans to double its lending to the sector in 2008, bringing it to RUB 2 billion (approx. $84.4m) or more. National Bank Trust is no exception, planning a 2.5-fold increase in its lending to small and mid-sized businesses of the North-West region in 2008.
Sberbank’s North-West Bank follows the trend and focuses on small businesses. In 2007 the bank opened a pilot center for small business lending in Pskov, and it plans to open another one in St. Petersburg this year. In the first quarter of 2008, the bank increased loans to small businesses 2.5-fold, to RUB 47.3 billion (approx. $2bn).
“The annual turnover of small and mid-sized businesses is currently estimated at about RUB 1 trillion (approx. $42.2bn), with lending covering no more than 70 percent of the sector’s needs. Development of small business lending allows banks to diversify their credit portfolios,” says Oleg Lugovoi, the head of retail lending at NOMOS-BANK.
“This segment is quite attractive to banks as interest rates on business loans are higher than average for the market,” noted Yulia Kostomarova, Director of the sales department at CIT Finance. Meanwhile, small and mid-sized companies have shown significant growth over the past few years, which testifies to the rapid development of this sector and its need for loans.
According to experts, competition among banks offering loans to small businesses is much higher today than it was two or three years ago. “Now, the market has matured and offers a wide range of products. Most probably, banks will compete for clients by easing collateral requirements, increasing loan periods, and with other special offers,” Demidov believes.
“We hope that this trend will continue in 2008, though the scale of lending to small and mid-sized businesses remains far below that of retail lending,” said Elena Sheveleva, General Director of Banque Societe Generale Vostok’s St. Petersburg office. Analytical department of RIA RosBusinessConsulting
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