SME crediting in Russia: time to make choice

The fastest growing market: in 2007 credits to SME grew faster than corporate and retail crediting.

Corporate credit portfolio in 2007 grew up by 49%, individual credit portfolio - by 57%, SME credits in bank assets amounted to 54.1 bln dollars (62%). Credits to small business proper (enterprises with earnings up to 5 mln dollars per year) were doubled and reached 21 bln dollars.

Regional nets complemented by interesting product offers may currently be expected to lead the SME credit market. The first extensive stage of development has been completed - federal banks opened branches and had to face systemic limitations, demanding further geographic coverage. SME crediting programs in federal banks, covering large territories, were extremely popular in 2006 - leading banks increased the number of their branches with SME credit access by 551. In 2007 252 more branches were opened, but the general increment trend prevailed - new players were quick in catching up. Easy SME access to credits turned into a new market paradigm.

On the other hand, credit products of interest to SME have to compete with each other. So far crediting conditions (demands to pledges, terms and schedules of payment), offered by banks, remain unattractive; credit transaction costs are quite high. Customized and innovative approach toward clients allows new players at the market segment to reach leading positions with great speed.

110 bln dollars at stake - by 2010 the SME credit portfolio may near 80 bln dollars, if the state is strategically active, otherwise the figure would not exceed 68 bln dollars. SME crediting banks currently face problems characteristic for any crediting segment at the inception stage. As the market gains maturity, the problems would be partially mitigated. On the other hand, the state SME active strategy may give momentum to new breakthrough.

The state measures to encourage mortgage activity in recent past form a good example of comprehensive strategy. SME development also requires team actions from banks, regulators and state administrators. Individual efforts would not suffice. Besides, newly set Vnesheconombank state corporation, also aimed at supporting SME, so far has been busy with larger projects.

By our assessment, an active state approach would enable to lift the majority of current limitations and foster speedy growth within the next three years with 280 bln dollars in the portfolio by 2010. Otherwise the SME credit portfolio would not exceed 168 bln dollars. The choice is very meaningful.