Bank Austria SME study performed by the Austrian Institute for SME Research reveals
Austrian SMEs are more optimistic than the economy as a whole: stronger turnover growth and more employees anticipated

  • SMEs also anticipate further turnover growth for 2012
  • SME outperformers operate much more profitably, they display disproportionately strong investment and export activity, and they have a lower debt ratio
  • In this context SMEs benefit from the lowest interest rates payable on borrowed funds in an EU comparison, and from effective bank-based funding: 97 per cent of SMEs met their financing needs in the last 18 months
  • 31 per cent of SMEs nevertheless fear that their funding situation may deteriorate due to changes in general conditions such as Basel III
  • In this regard increases in key interest rates by the ECB have a decidedly stronger impact on SME's funding costs than Basel III
  • Active management control significantly improves a company's situation, but 52 per cent of SMEs do not plan
  • This means that challenges can be overcome with better liquidity and business planning, an increase in equity capital and selective use of subsidised loans

Rainer Hauser, member of Bank Austria's Management Board with responsibility for private customers and small and medium-sized enterprises, explains the purpose of Bank Austria's SME study: "Small and medium-sized enterprises are a key target group for our company. We are easily the leading bank in Austria's business sector and we want to also significantly improve our position as one of the top three banks in the SME segment to become the leading SME bank in Austria."

Small and medium-sized enterprises with between 10 and 249 employees are the most important employer in Austria. "The approximately 38,000 small and medium-sized enterprises with between 10 and 249 employees (about 12.5 per cent of all Austrian companies) employ over 1.1 million employees, which represent about 45 per cent of all wage and salary earners in the entire market-oriented economy", says Peter Voithofer, director of the Austrian Institute for SME Research. "This makes them the mainstay of the Austrian labour market, with the number of employees exceeding that of large companies, which account for not quite 38 per cent of all wage and salary earners."

SMEs are particularly optimistic for 2012
Following its forecast for strong growth of 3.1 per cent for 2011, Bank Austria expects economic growth to slow to 1.8 per cent in 2012. Contrary to the general economic trend, SMEs have remained optimistic for 2012; this is reflected in the results of the primary survey. The proportion of small and medium-sized enterprises with positive expectations is much higher than that of businesses with a pessimistic outlook (2011: 44 per cent; 2012: 47 per cent). This averaged 33 per cent for the period covering the last three years. The growth momentum is shifting from the heavily export-oriented industries to the more domestic-oriented service sectors.

At the sectoral level, SMEs active in providing business-related services turned in a disproportionately strong performance in the period 2008 to 2010. The sectors with the strongest growth rates were those with technical services, other business-related services, and services provided by independent professionals.

Growth pays, both for the businesses and for society as a whole
The segment of SMEs experiencing dynamic growth, the outperformers, covers about 38 per cent of total SMEs, measured by turnover and employment in a five-year period. An analysis of the growth trends and operating performance of these enterprises shows that the segment constitutes a basis for social prosperity through the creation of new jobs and that economic growth is boosted by these companies' investments. The outperformers among the SMEs moreover prove that it also pays for enterprises themselves to ensure growth as the former generate disproportionately high profits. They have been achieving annual profit margins in the region of 4 per cent to 4.6 per cent for many years, which is an average 2 percentage points above the SME average.

What these enterprises have in common is that they invest a larger proportion of their turnover; at 5.3 per cent their investment ratio is well above the SME average of 3.9 per cent. They also have a debt ratio below that of other small and medium-sized enterprises, while amounts due to banks as a percentage of total capital of the outperformers comes to 30 per cent compared to 32 per cent for the other SMEs.

Outperformers achieve higher exports
The study also reveals differences in regard to export activity. Among the exporting SMEs, almost 15 per cent of all enterprises, the outperformers boast an above-average export ratio. Although most of Austria's small and medium-sized enterprises have a cross-border customer base, about 29 per cent of exporting businesses generate less than 5 per cent of their overall turnover on the global market. This compares with about 25 per cent of SMEs whose exports account for over one- half of overall turnover.

SME funding works
Austria's small and medium-sized enterprises are heavily dependent on borrowed funds, notwithstanding a noticeable increase in their equity ratio over the last ten years. Amounts due to banks only rose slightly in 2009, to an average 31 per cent. Between the beginning of 2010 and spring 2011, 26 per cent of the survey respondents had additional financing needs which they endeavoured to cover through bank loans. 97 per cent of SMEs that wanted to raise funds through banks had their funding needs met. Only 3 per cent failed to receive the desired bank-based funding (these mostly involved smaller businesses). Austrian enterprises moreover pay average interest of 2.7 per cent p.a., the lowest interest rate payable on business loans in the entire euro area. This clearly shows that small and medium-sized enterprises have not experienced any credit crunch in the last 18 months. "This for us underlines that we have successfully met our responsibility to the domestic economy of providing businesses with capital", says Bank Austria's Management Board member Rainer Hauser. "In 2010 we disbursed EUR 923 million in fresh loans under our "business billion" initiative for SMEs – and new loans granted by us in Austria overall were up 19.6 per cent compared with 2009, to EUR 13.2 billion."

However, 31 per cent of the survey respondents in the future expect to encounter problems in their attempts to raise funds, primarily on account of the issues currently being discussed (Basel III), as the lending environment is changing. Small enterprises, in particular, are sceptical about the future.

Basel III – a challenge that can be overcome
It is especially long-term, unsecured SME loans that generate high risk-weighted assets (RWA). "The higher equity ratios that will be required in the future (i.e. more capital for the same RWA), will probably make loans only negligibly more expensive", says Stefan Bruckbauer, Chief Economist of Bank Austria. "The risk from interest rate changes when the ECB changes the key interest rates has much greater implications. From a current perspective, the burden imposed by anticipated interest rate increases is at least four times as high as the effect from the stricter capital requirements", Bruckbauer explains.

The changes in the regulatory environment and in other areas for banks will however affect growth in the medium term, and will therefore also have repercussions for SMEs. "Companies should therefore take important measures such as increasing the equity ratio, improving liquidity calculations, and taking advantage of all the possibilities for obtaining subsidised loans", recommends Rainer Hauser. But this requires more planning, and this is precisely what many SMEs still need to do, as the study shows.

Frequent need to catch up with formal, written business planning
Entrepreneurial decisions often do not depend on the size of the business and are in many respects comparable. What differs, however, is the structured manner in which decisions are approached. "Some 52 per cent of small and medium-sized enterprises indicated they do not have a formal, written business plan", says Rainer Hauser. The proportion of companies with a formalised procedure increases with the company's size. The study shows that business success only comes with at least a little planning. Between 2008 and 2010, the turnover of companies with a formal business plan rose twice as frequently as in companies without a plan.

Planning is however not the same as strategy, because about 52 per cent of the small and medium-sized enterprises which do not have a written business plan do have precisely defined business targets. Unfortunately this also means that about one-quarter of the small and medium-sized enterprises have neither a plan nor a target.

"The study clearly shows that many businesses would benefit substantially from support in fine-tuning their financial and planning processes", says Bank Austria's Management Board member Rainer Hauser in summing up. "In this context we are available as a strong banking partner who can do just that. We interact closely with companies and want to accompany them as partner. We offer bespoke advisory and customer services, and we have almost tripled the number of our advisory centres for SMEs in Austria, from 22 to 60. We are making our contribution to funding SMEs by again making one billion euros available to these enterprises in 2011 with the "business billion" initiative, and with our know-how and regular SME information days in all the Austrian regions we help SMEs to take advantage of assistance fund programmes. Customised tools such as Konto4Business, Finanzierungs- und BranchenCheck, BusinessPlanner, Working Capital Check, RatingBeratung, special export finance advisory services and many other measures make us the first port of call for small and medium-sized enterprises in Austria."

Enquiries: Bank Austria Media Relations Austria
 Matthias Raftl, tel. +43 (0) 50505 52809
  e-mail: matthias.raftl@unicreditgroup.at

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