Moody's: SME loan payment delays in Italy and Spain may improve, but still lag behind the UK and the Netherlands

London 2012 - view from orbit tower (George Rex_Flikr)

Improved SME related data quality will help SMEs access credit 

While SME loan payments in Italy and Spain lag behind the UK and the Netherlands, they may improve on the back of the economic recovery, says Moody's Investors Service in a special report published today. Moody's data show that they display the largest gap between contractual and actual payment timing in the business-to-business and public sectors. 

The rating agency expects payment delays to improve in Spain, mirroring the economy's recovery. Italian small and medium-sized enterprises (SMEs) have already shown some improvement in this regard in 2015. Moody's also says improvements to financial, behavioural and performance data quality on European SMEs will help lenders assess borrower creditworthiness more accurately, boosting their willingness to lend and decreases refinancing risk in European ABS deals backed by SME loans. 

"Moody's delinquency data for asset-backed securities backed by SME loans show performance is more closely correlated with economic growth rather than payment delays. For this reason, although payment delays are still long - especially in Italy and in the public sector - we do not expect arrears to rise in ABS SME deals due to delays," says Monica Curti, a Vice President - Senior Credit Officer at Moody's. 

Moody's says payment delays can affect SMEs' liquidity, as liquidity conditions are tight. 

"Assuming that liquidity issues are a direct result of late payment, they nonetheless do not necessarily lead to default because Southern European SMEs are operationally prepared to manage this problem, which is reflected in ABS SME deal performance," observes Ms. Curti. 

The new reports: "Late SME Loan Payments are still high in Southern Europe, but the impact on Securitisation will be limited," and "Improved Data Quality Helps European SMEs Access Credit and Lowers Refinancing Risk for ABS," are available on 

"Payment delays are both a cause and consequence of financial difficulties," says Greg Davies, an Assistant Vice President - Research Writer at Moody's. "Financial difficulties can lead to increases in payment delays and the latest data shows this, but late payments also lead to liquidity problems; one would assume that the recessions in some countries means that their domestic SMEs would be in a worse position to pay," he adds. The report cites data from Intrum Justitia showing that in 2015, 82% of companies in Italy gave financial difficulties as reasons for late payment; in Spain, this percentage is 88%. This is considerably higher than 39% in the UK and 60% in the Netherlands. But, in Italy, 73% of companies in 2015 cited liquidity problems owing to late payments. 

Initiatives to improve data quality are already underway, including the European Central Bank's (ECB) AnaCredit project to establish a European credit register, tools leveraging the European Datawarehouse and the European centralised financial database. 

"Improvements to the quality of, and lenders' access to, data on SMEs' credit worthiness will help lenders more accurately assess this, which will have a two-fold effect of increasing lenders' willingness and ability to lend to SMEs, while simultaneously decreasing refinancing risk in SME ABS pools," says Ms. Curti. 

Moody's says widely available borrower data discourages bad behaviour among SME borrowers, especially in fragmented banking systems. For example, borrowers have greater incentive to repay when they know lenders share their credit records, and that a default with one lender would disrupt their access to credit from all other lenders. Second, data sharing helps close the information gap between SMEs and bank and between bank and non-bank lenders. This diversifies the lender base by encouraging alternative lending, which reduces refinancing risk and lowers borrowing costs. Non-bank lenders (such as peer-to-business platforms and private debt funds) typically do not have their own data on borrowers' past payment behaviour, so better access to SME borrower data is crucial for sound origination and servicing. 

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