The ‘very small, small and small enterprises’ pay the big ‘loss’ from high interest rates. Says who? The Central Banking. Are we going to hear anything about it at the ICU?

Within August the BIS (Bank for International Settlements), which is called the Central Bank of the Central Banks, based in Basel, was kind enough to publish an extremely interesting study. Very timely, especially now that interest rates are to be reduced from the inconceivable heights raised by the Central Banks from the first half of 2022. The subject-matter of the study carried out on the basis of the data provided by European commercial banks in the period from the first quarter of 2021 to the second quarter of 2021 concerns the consequences of increasing interest rates on banks and then the consequences of the attitude of banks to small businesses. It reveals or rather confirms the study published by the BIS website (‘Are low interest rates firm back; Interest rate risk in the banking book and bank lending in a radical interest rate environment’, by Lara Coulier, Cosimo Pancaro and Alessio Reghezza), that the one who actually paid the bride from the largest and most unexpected interest rate increase since the 1970s, in the Eurozone, is no other than small businesses and freelancers with small and medium-sized enterprises. Why? Because banks taking “measures” to cope with the pressure from the ECB’s increase in interest rates, from zero interest rates to 4-4.5%, first of all cut funding to so-called small entrepreneurship. We know the consequences, as small and small and medium-sized enterprises like freelancers did not have and still do not have, another source (loan) of funding and refinancing… This is what the study published by BIS describes. After explaining the situation created for banks by the increase in interest rates and the way they dealt with it, it then refers to the effects on small entrepreneurship: · Rapid and unexpected increases in interest rates can adversely affect the financial value of banks’ own funds due to changes in present value and the timetable of future cash flows. Overall, interest rate increases lead to a decrease in the net position of a bank, as the value of assets decreases more than the value of liabilities. This effect is more pronounced for banks with a high positive mismatch between the duration of their assets and liabilities, i.e. banks with a longer gap. Banks with a longer maturity gap redistribute their debt portfolios away from fixed-rate loans and longer-term loans. · Micro, small and medium-sized enterprises are most affected by the shrinking of the loan supply. Also, as we demonstrate, these companies cannot substitute for the shrinking of credit from banks with a longer maturity gap (e.g. between long and short-term interest rates), with more borrowing from banks with a shorter maturity gap. This leads to an additional reduction in lending during a monetary tightening episode for these companies compared to other enterprises. In …just Greek banks and especially those that had large gap between short and long-term loans closed the cannula to small and very small businesses leading massively to closure or bankruptcy and a sharp increase in red loans, given the economic situation. The authors of the study further explain that the study exploits the data from the time of the larger and faster increase in interest rates than the creation of the euro to find that banks with higher interest rate exposure limited corporate lending more than their counterparts to the companies they had already lent. “We find that banks with a higher net maturity restructured their loan portfolio away from long-term loans in an effort to limit the increase in interest rate risk and targeted the shrinking of their lending to small and very small businesses…”. If this finding of BIS scholars is found to be “read” in particular in the Greek environment, in which small entrepreneurship has suffered and continues to suffer suffocating pressure from the huge (largest in Europe) differences between borrowing and deposit rates. Taking into account the compression by the tax mengene with the “new” tax perceptions of the notorious extreme conservative “Testimonial Income” and to them adds the consequences of the nightmare of VAT and the ETC, it is understood that the notorious “development” in Greece probably counts … days. And from what seems to reach the media about the contents of the announcements at the TIF, none of them have focused the government’s attention. As for banks, it is known to the small and medium-sized directly concerned that in order to see real interest reductions in the context of what the ECB is expected to do will still have to wait. Those who haven’t closed yet…