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Driving force of business lies in foreign markets and focus on efficiency

2018-05-09

Lithuanian small and medium-sized enterprises (SMEs) are ambitious - they focus on higher value added products, raise efficiency level and export more and more products to foreign markets.
Highlighting these tendencies Vytautas Sinius, Chief Executive Officer of Šiaulių Bankas,  states that SMEs are not intending to cut-off their speed  -  rising lending volumes indicate optimistic business expectations. According to the CEO, the biggest challenge is the growing shortage of labour force which is  being faced by  more and more Lithuanian businesses.

SME financing  is one of the priorities of Šiaulių Bankas. What trends have lately been predominating in the SME sector?

I would point out two striking positive trends. Firstly, for many SMEs Lithuania is already  too small and they are expanding through exports. Just last year Lithuanian exports grew by 18.2 per cent - SMEs also contributed  to this indicator significantly.  Secondly, SME's growing focus on increasing efficiency - both investing in modernization and in more efficient business processes.

For the past few years, we have been observing that SMEs are increasingly expanding their operations in export markets. We are pleased to see that even small companies are able to find their niche in foreign markets and succeed in getting them established. If, in the recent past,  the main competitive advantage of Lithuanian companies was a lower production price,  now we can see that Lithuanian businesses are valued in foreign countries for a good price and quality ratio.

Many European customers are already not satisfied with the low quality of production made in China or other Asian countries. They are looking for partners located in geographically closer countries - Lithuanian businesses are taking advantage of it successfully as they can provide high quality at competitive prices.  We can see the successful integration of traditional industries such as wood and metal processing and component manufacturing companies in the Western markets.

What about companies with the main market in Lithuania?
The internal-market focused business growth is a little bit modest, but we should acknowledge the size of Lithuanian market and the prevailing demographic trends which are shrinking the local market.

However, we can notice some successful sectors in market – trade, service, especially the construction sector, which is being nourished by the constant and high real estate demand. Great stimulus for the construction sector is the success of apartment renovation program giving opportunities   for small-sized construction companies to flourish. Šiaulių Bankas is a biggest renovation projects financing partner in Lithuania – occupying 60%  of renovation program market.

What makes SMEs focusing on increasing productivity?
The biggest challenge is the lack of work force. While interacting with entrepreneurs it is common to say that the business is fully prepared to offer a competitive salary, however it is extraordinary difficult to find qualified and motivated workers. The high current scale of emigration suggests that the wise work force immigration politics, which would encourage value-generating specialists to work in Lithuania, might be the good solution. However, the immigration barriers in the country are strict. These barriers for SME are impossible to overcome, since small companies often do not possess the right amounts of resources and competence to employ personnel from outside countries.

The next challenge is uneven economical growth in cities and regions. The biggest business expansion is happening in three largest cities in Lithuania; the growth can be seen in other regions as well. It is noticed that the government is already changing its approach towards the business - it is easier to receive business permits, to coordinate the acquisition terms and other procedures. However, for business established and working in periphery, the development is extremely complicated.  If in Western Europe regional business is often being protected, even with the help of various hidden subsidies, regional companies in Lithuania are not subject to lighter conditions. The state could think about tax breaks at least.

How are SME lending volumes changing?
Last year, the total portfolio of loans issued by Lithuanian banks to businesses increased by more than 600 million euro. This year Šiaulių Bankas was active and our portfolio of loans for business increased by 25% up to 901 million euro.

We see that after the previous economic crisis SMEs borrowed more cautiously and responsibly. It remains true that business lending rates for the first quarter of this year are particularly optimistic and indicate a growing business willingness to invest in increasing business volume or productivity

We see rising interest in credits with guarantees - last year, such loans accounted for almost one fifth of the bank's loans to businesses. Collaboration with Invega, a loan from the European Investment Fund with portfolio guarantees allows us to finance even those companies that would otherwise not be able to receive bank’s financing. So it helps companies to receive the opportunity for development.

What is the difference between SME credit and corporate lending?
First of all, SMEs expect quick solutions from the bank. Unlike large corporations, SMEs are more flexible, more responsive to the market situation and make decisions quickly. Naturally, the business also expects the same attitude from the bank. Another SME expectation is predictable bank solutions. If the company seeks to receive credit after three months, even on the same day the bank must be ready to give an answer on whether the loan can be granted at the time and under what conditions

Mutual trust and understanding is of utmost importance for smaller businesses. The managers of SME expect their ability to understand their business and advise them.

Are there any favorable conditions for business to borrow and how will these conditions change in the future?
In Europe, the low interest rate environment has been prevailing for many years and conditions for borrowing are favorable. In the future, interbank interest rate swaps indicate that a rapid increase in interest rates should not be expected at least in the near future.

But for entrepreneurs I always advised that  not be charmed by low interest rates and borrow responsibly - the company must be ready to assess if it will be able to pay credit instalments if interest rates increase slightly.

Vytautas Sinius, Head of the Administration at Šiaulių Bankas, emphasizes that SMEs expect from the bank  rapid and predictable solutions and mutual trust.