4.2.5. Crediting of industry In 2011 the credit terms for Russian industry improved by 5 percent points as compared with the 2010 annual average and approached the 2005 level (see Fig. 25). Just 9 percent points are separating this indicator from the best annual average registered in 2007. But its achievement in a short time is not as evident as it may seem. First, the bettering of credit terms over the past year is close to the average annual growth rates of this indicator in 20002007. Second, the post-crisis restoration of credit terms took place mainly in 2009 (then the indicator was up by 29 points and recovered all losses of late 2008) and is most likely over.
The relationships between banks and industrial enterprises are entering the trajectory of smooth changing (“growth” doesn’t seem to be the right term for it any longer). Third, the annual curve of credit terms for industry in 2010-2011 supports the thesis that their improvement withers away. Fourth, in the situation of sluggish industrial growth enterprises themselves have smaller need for credits, the shortage of which is no longer a constraint to the increase of output in Russian industry (as stated by producers). It seems that insufficient crediting and low rates of its growth are now becoming a problem of banks rather than industrial borrowers.
At the same time, an insight into the overall picture of improving credit terms reveals the existence of “growth points” in Russian industry.
First, banks have reserves for softening the credit terms up to the pre-crisis levels depending on the size of an enterprise. The estimate of average annual availability of credits by size groups of enterprises indicates that banks have made the biggest progress in restoring the precrisis level of access to credits for very large entities (with over 1,000 employees). In the “”normal” average annual availability of credits for this category of borrowers amounted to 78% and was only 5 points behind the record set in 2007. In the group of large enterprises (with 251-1,000 employees) this indicator equaled 57% which was 12 p.p. below the record for this group. Small and medium enterprises (up to 250 employees) restored “normal” availability of credits in 42% of cases which is 16 p.p. below the pre-crisis maximum (see Section The Real Sector of the Economy Fig. 26). So, banks can improve the general credit terms for industry primarily by more active crediting of small and medium business.
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Fig. 25. Share of enterprises with normal availability of credits, % >1000 EMPLOYEES 251-EMPLOYEES 1-250 EMPLOYEES 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Fig. 26. Share of enterprises with “normal” availability of credits by size groups, % Second, similar conclusions can be made when analyzing dynamics of “normal” credit availability by branches. The biggest progress in post-crisis crediting was made by banks in metallurgy where already in 2010 81% of enterprises had “normal” access to credits (which was only 5 points below the pre-crisis record) (see Fig. 27). But the slowing down of recovery from the crisis in 2011 halted the facilitation of access to credits and probably the very extension of lending scope in the sector as well. In machine-building banks followed quite different policies. In 2010 they improved the availability of credits therein up to the level of 64% and in 2011 raised it to 75%. As a result within 2 years the availability of credits grew by 41 p.p., with the 2011 indicator falling behind the pre-crisis maximum by only 4 points and ranking second among all branches (metallurgy showing somewhat better result). In case RUSSIAN ECONOMY IN trends and outlooks these trends continue, machine-building may leave metallurgy behind by the convenience of bank crediting as well. The restoration of access to credits in consumer goods industry faces more difficulties. In 2011 only 39% of enterprises stated “normal” availability of credits which is the lowest indicator among all industries. 22 points separate the current indicator from the pre-crisis maximum (the second result after timber processing). In 2011 banks began to tighten credit terms for the industry notwithstanding the fact that in 2010 the availability of credits therein was the lowest as compared with other branches.
MACHINE-BUILDING METALLURGY CONSTRUCTION MATERIALS INDUSTRY CONSUMER GOODS INDUSTRY 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Fig. 27. Share of enterprises with “normal” availability of credits by branches, % Let’s examine the changes in credit terms for Russian industry in 2011.
At the beginning of the year the availability of credits for industry overcame the December drop of 2010. Then the indicator fell by 6 points and became an 8-month minimum. In January it grew by 8 p.p. and reached the pre-crisis level of summer 2008. The minimal interest rate on ruble credits charged by banks resumed falling. In January 2011 credit institutions were ready to lend rubles at 12.7% per annum on the average while enterprises considered “normal” interest rate to be 11.9% (the value of this indicator in case of “normal” availability of credits). The difference between the interest rate for very large enterprises and that for small and medium businesses was 4.5 p.p. although in September 2009 it hardly exceeded 1 p.p.
In February the availability of credits for industry failed to maintain the weak upward trend that formed in November and January. As a result 69% of industrial enterprises were satisfied with their access to bank credits. Meantime the priorities of banks didn’t change. The most convenient credit terms were offered to enterprises in metallurgy (in January-February 85% of enterprises therein had “normal” access to credits, the minimal interest rate in February averaged 9.4% per annum), food industry (76% and 11.8%, respectively), chemical and petrochemical industry (72% and 11.2%) and machine building (74% and 12.0%). As usual, on the other pole were consumer goods industry (38% and 13.9%) and construction materials industry (53% and 14.5%). At the beginning of the year credits to small- and medium-sized enterprises (1-250 employees) were available at 14.7% per annum, to very large enterprises (over 1,000 employees) – at 10.6%.
Section The Real Sector of the Economy In the I quarter of 2011 the need of industry for borrowed funds remained positive, i.e. the share of enterprises that planned to increase demand for credits (24%) was higher than that of enterprises that planned to reduce it (7%). As compared with the IV quarter of 2010 the balance (i.e. the rate of growth) of this indicator didn’t change. But Russian industrial enterprises were not strongly concerned about the shortage of credits. On the one hand, in 2010 banks clearly softened credit terms as regards both interest rates and other parameters. On the other hand, slack economic growth conditioned low demand for credits by enterprises. Therefore, in the I quarter of 2011 the deficit of credits had the smallest constraining effect on the growth of industrial output as compared with other inputs.
At the beginning of the year the ability of industry to service credits amounted to 82%. The credit solvency was the highest in metallurgy (100% of enterprises considered themselves to be solvent), machine-building (83%) and food industry (82%).
Results of the I quarter of 2011 revealed that banks restored credit terms for industry at large to the pre-crisis level and did not intend to further soften them. The evidence of that was the share of enterprises discontent with the availability of borrowed funds. Since August this indicator stabilized in the interval between 11% and 14%. In the pre-crisis period its smaller (i.e. better) values were registered only in summer 2007. Then 8% of enterprises weren’t content with the terms of bank offers (the absolute minimum of 11 years of monitoring). In the I quarter of 2011 ruble credits were available to enterprises at 12.6% per annum at best (similar indicator of the IV quarter of 2010 was 13.0%).
At the beginning of the II quarter the terms of bank credits did not change. “Normal” access to credits was stated by 70% of enterprises in industry at large, by 92% - in metallurgy, by 71% - in chemical industry, by 69% - in machine building. The greatest difficulties in getting credits were encountered by enterprises in consumer goods industry (only 28% of them stated “normal” access to credit funds) and in timber processing (47%). At the start of the year the minimal interest rate charged by the banks also stabilized and amounted to 12.7% per annum. However, the shortage of credits had actually no effect on the output dynamics. In the II quarter of 2010 only 5% of enterprises considered it to be a constraint to production growth.
In the middle of the year the ability of enterprises to service credits already extended to them deteriorated. In May this indicator fell down to 81% (of the number of enterprises having debts under credits) from the record 87% in December 2010. This negative trend is due to an apparent worsening of enterprises’ financial performance registered in the II quarter of 2011. Coupled with an absolute decrease of sales and the lack of confidence in the future, it forced enterprises to revise their borrowing projections. In the II quarter of 2011 this indicator fell to +10 b.p. down from +18 b.p. in the IV quarter of 2010. In the middle of the year the highest demand for credits was observed in electric power industry (+32 b.p.), timber processing (+19 b.p.) and consumer goods industry (+16 b.p.). The reduction of demand for credits was projected in metallurgy and construction materials industry.
Despite the uncertain economic situation the availability of credits for industrial enterprises continued to improve. In June 2011 only 8% of enterprises found that banks offered them too rigid credit terms. As a result this indicator reached the historical minimum registered in June 2007. Within the II quarter of 2011 the average share of responses “below normal” in respect to the availability of credits fell to 10% down from 11.6% in the I quarter of 2011 (see Fig. 28). So, in the II quarter banks went on softening credit terms for industry.
RUSSIAN ECONOMY IN trends and outlooks However, according to the data of RF Central Bank for the I quarter of the year, they planned to stop this softening for corporate borrowers.
IV quarter II quarter 01/00 01/01 01/02 01/03 01/04 01/05 01/06 01/07 01/08 01/09 01/10 01/Fig. 28. Share of industrial enterprises with “below normal” availability of credits, average % per quarter Judging by the dynamics of average minimal interest rates, banks made such an attempt in March-April when they raised the rate first up to 12.8% per annum and then – up to 13% from 12.5% charged in February. But the lack of demand for credits from industry, the pertaining surplus liquidity of the bank system and the difficulty of finding reliable borrowers once again forced banks to reduce interest rates down to 12.5% in May and 12.2% in June.
In July the credit terms for industrial enterprises did not undergo any principal change. The average minimal interest rate on ruble credits offered by banks to industry at large remained at the level of 12.3% per annum. The dependence of interest rate on the size of enterprise persisted as well. In May-July for small- and medium-sized enterprises credits were available at 14.8% per annum, for very large (over 1,000 employees) – at 10.5%.
In August the credit terms offered by banks to industry remained the most convenient from the onset of the crisis: 72% of enterprises considered them to be “normal” and 5% - even “better than normal”. In June-August the latter indicator stabilized in the interval from 5 to 6% which was a sign of insistent offering of money (not much needed in the situation of sluggish demand) by banks to enterprises. In August the average minimal interest rate on ruble credits offered by banks remained at the level of 12.3% per annum.
Within the III quarter the availability of credits for industrial enterprises fell by 3 points as compared with the II quarter of 2011 when a quarter maximum (71%) of this indicator since the 2008 crisis was registered. In the second half of the year commercial banks seemed to start the tightening of credit terms that they had promised to the RF Central Bank. But they did it selectively. As judged by borrowers (see Fig. 29), this tightening affected only very large enterprises (with over 1,000 employees). However, it looked rational as it was this group of enterprises that enjoyed the most convenient credit terms in the first half of 2011, more rapidly regained the trust of banks in 2009-2010 and as a result actually restored the pre-crisis level of this indicator.
Section The Real Sector of the Economy >1000 EMPLOYEES 251- EMPLOYEES 1-EMPLOYEES 1/00 1/01 1/02 1/03 1/04 1/05 1/06 1/07 1/08 1/09 1/10 1/11 1/Fig. 29. Share of enterprises with “above normal” and “normal” availability of credits by size groups, average % per quarter In October industrial enterprises did not experience the tightening of credit terms proclaimed by banks and expected by experts. The general estimate of “normal” availability of credits remained at the level of 68%. Very large enterprises were content with the availability to credits in 80% of cases while small and medium ones – in 35% thereof. Branch priorities persisted in the crediting of industry as well: while in metallurgy and chemical industry over 70% of enterprises had “normal” access to borrowed funds, in the consumer goods industry this share was only 35%.
In October the increase of interest rate charged by banks on credits extended to enterprises didn’t take place either. Moreover, it fell to 11.8% down from 12.2% in September. For enterprises stating “normal” availability of credits the rate was as low as 10.8%. To small and medium enterprises credits were offered at 14.3% per annum, to very large (over 1,000 employees) – at 10.0%.