Financing SMEs in Cyprus: no stone left unturned? - ACCA

36 Pages·2014·0.43 MB·English

ACCOUNTANTS FOR BUSINESS
Financing SMEs in Cyprus:
no stone left unturned?
About ACCA
This report presents the findings of
ACCA (the Association of Chartered Certified an independent study by RTD
Accountants) is the global body for professional
Talos into ways of improving
accountants. We aim to offer business-relevant, first-
choice qualifications to people of application, ability and SMEs’ access to finance in Cyprus,
ambition around the world who seek a rewarding career
as well as ACCA’s response and
in accountancy, finance and management.
policy recommendations. It is
Founded in 1904, ACCA has consistently held unique
core values: opportunity, diversity, innovation, integrity based on a series of stakeholder
and accountability. We believe that accountants bring
interviews and member input
value to economies in all stages of development. We aim
to develop capacity in the profession and encourage the following a global call for evidence
adoption of consistent global standards. Our values are
by ACCA.
aligned to the needs of employers in all sectors and we
ensure that, through our qualifications, we prepare
accountants for business. We work to open up the
profession to people of all backgrounds and remove
artificial barriers to entry, ensuring that our qualifications
and their delivery meet the diverse needs of trainee
professionals and their employers.
We support our 162,000 members and 428,000 students
in 173 countries, helping them to develop successful
careers in accounting and business, with the skills needed
by employers. We work through a network of over 91
offices and centres and more than 8,500 Approved
Employers worldwide, who provide high standards of
employee learning and development.
ABOUT ACCOUNTANTS FOR BUSINESS
ACCA’s global programme, Accountants for Business,
champions the role of finance professionals in all sectors AUTHORS
as true value creators in organisations. Through people,
process and professionalism, accountants are central to This report has been prepared for
great performance. They shape business strategy through ACCA by RTD Talos. The research
a deep understanding of financial drivers and seek team consisted of:
opportunities for long-term success. By focusing on the
critical role professional accountants play in economies at Dr Alexandros Michaelides, CEO
all stages of development around the world, and in
diverse organisations, ACCA seeks to highlight and Panagiotis Savvides, Lead Researcher
enhance the role the accountancy profession plays in
supporting a healthy global economy. Diamantina Beza, Researcher.
www.accaglobal.com/ri
FOR MORE INFORMATION CONTACT
Emmanouil Schizas
Senior Economic Analyst, ACCA
[email protected]
© The Association of Chartered Certified Accountants,
2May 2014
Contents
Foreword 5
1. Introduction 6
2. Stakeholder interviews 10
3. Overview of recommendations 11
4. Bank-initiated solutions 13
5. Government-initiated solutions 16
6. Solutions initiated by alternative finance providers 23
7. Restoring access to finance for Cyprus’s SMEs: ACCA’s response 25
Appendix: An overview of EU Funded Liquidity Instruments 30
References 33
FINANCING SMES IN CYPRUS: NO STONE LEFT UNTURNED? 3
4
Foreword
While visiting Cyprus in late 2013, I had a chance to hear at first hand from ACCA’s
members and stakeholders how the current financial and economic crisis was
affecting the country’s small and medium-sized enterprises (SMEs.)
As a sign of ACCA’s commitment to our membership in Cyprus, to the SME sector
and to the public interest, I promised at the time that ACCA would commission
independent research into the subject of SME financing, and return with
recommendations for government, businesses and professional accountants.
It is now my pleasure to fulfil this promise, by publishing the independent report
prepared for ACCA by RTD Talos, as well as our own response and
recommendations. I am delighted to see the range and calibre of stakeholders
from Europe and beyond who have responded to ACCA’s international call for
evidence, and I am grateful to all contributors.
Talos’s findings underscore the value of financial information and good financial
management as the most reliable building blocks of SMEs’ access to finance. They
point to a role for government, not merely as a lender or carrier of risk, but as a
builder of financial infrastructure around which the private sector can first heal, and
then innovate.
What happened in Cyprus in 2013 is almost without precedent: the overnight
shutting-down of a developed country’s banking system. Nonetheless, this does
not mean that policymakers cannot benefit from international experience – only
that they must draw from a wider pool of good practices, and often from
Helen Brand
unexpected places.
ACCA chief executive
I believe that the scope of ACCA’s global Access to Finance programme and the
breadth of skills among our membership make us a natural partner of both
government and industry in Cyprus. From frontier capital markets in south east
Asia, to microfinance intermediaries in east Africa, to the Fintech champions in the
City of London or the public-funding juggernauts of Brussels and Luxembourg, the
reach of our professional network is unparalleled.
Most important of all, however, will be the contribution of our members on the
ground. As SMEs’ most trusted advisers, finance professionals in practice and in
business will undoubtedly be the ones to lead the sector on the long road to
recovery. They can count on our unwavering support.
FINANCING SMES IN CYPRUS: NO STONE LEFT UNTURNED? 5
1. Introduction
Cyprus is facing a credit and liquidity banking system and government following the banking crisis prohibited
crunch unprecedented among powerless to assist businesses has the opening of new accounts at any
developed countries, following the exacerbated what was already a very bank for local residents, other than
collapse of the country’s difficult situation. making a deposit above €5,000. The
disproportionately large, international combination of falling wages and job
financial system in early 2013. The The scale of capital flight, caused by the insecurity literally stopped consumers
bail-in of March 2013 was originally decision of the Eurogroup to force from making any major purchase
aimed at recapitalising Cypriot banks in depositors to recapitalise the banks in decisions beyond essential ones.
order to return them to health, while which they held their deposits and by
strict capital controls (previously the decision to sell Cypriot banks’ The charts below highlight the scale of
considered impossible in the Eurozone) subsidiaries in Greece, has been capital flight. On March 2012, the
were aimed at preserving their deposit phenomenal, changing the financial Central Bank of Cyprus reported total
base. Neither worked quite as landscape in many ways. Companies deposits of €70.7bn. By June 2013, that
envisaged, with evidence of sharply that depended on their cash flow to pay figure was at €50.7bn and by March
reduced lending, rising delinquencies salaries and suppliers no longer had the 2014, total deposits were at €46.2bn, a
and continued deposit flight funds or had limited or no access to 35% reduction in two years. Loss of
throughout the country. Meanwhile, the them. Access to any type of bank business deposits has been even more
country’s international bailout is itself financing was all but eliminated for rapid than that of household deposits.
subject to a great deal of criticism, more than a year. Wary depositors no
especially with regard to debt longer trusted the banks with their The reduction in deposits by local
sustainability. The combination of a money and capital controls introduced residents was 31%, with €32.5bn
deposited in banks as of March 2014
compared with €42.6bn in February
2013 and an estimated €1bn currently
held outside banks. The situation will
Figure 1.1: Deposits at banking institutions in Cyprus (in €millions)
only get worse as the Bank of Cyprus,
Cyprus’s largest bank, is partly financed
through €9.55bn-worth of Emergency
Liquidity Assistance (ELA) provided by
75,000
the Central Bank of Cyprus, liquidity
70,000
that will be gone from the local market
65,000 as the Emergency Liquidity Assistance
is partly repaid.
60,000
55,000
50,000
45,000
40,000
2 2 2 2 2 3 3 3 3 3 3 4 4
1 1 1 1 1 1 1 1 1 1 1 1 1
0 0 0 0 0 0 0 0 0 0 0 0 0
2 2 2 2 2 2 2 2 2 2 2 2 2
March May July mber mber nuary March May July mber mber nuary March
e e a e e a
pt ov J pt ov J
e N e N
S S

6
Figure 1.2: Company deposits in Cyprus Figure 1.3: Household deposits in Cyprus
(in €millions) (in €millions)
40,000 40,000
Total
35,000 35,000
Local
30,000 30,000
Other Euro area
25,000 25,000
20,000 20,000 Rest of the world
15,000 15,000
10,000 10,000
5,000 5,000
0 0
2 2 2 3 3 3 4 2 2 2 3 3 3 4
1 1 1 1 1 1 1 1 1 1 1 1 1 1
0 0 0 0 0 0 0 0 0 0 0 0 0 0
2 2 2 2 2 2 2 2 2 2 2 2 2 2
March July mber March July mber March March July mber March July mber March
e e e e
v v v v
o o o o
N N N N
Figure 1.4: Insurance and pension funds Figure 1.5: Other financial deposits in
deposits in Cyprus (in €millions) Cyprus (in €millions)
9,000 9,000 Total
8,000 8,000
Local
7,000 7,000
Other Euro area
6,000 6,000
5,000 5,000 Rest of the world
4,000 4,000
3,000 3,000
2,000 2,000
1,000 1,000
0 0
2 2 2 3 3 3 4 2 2 2 3 3 3 4
1 1 1 1 1 1 1 1 1 1 1 1 1 1
0 0 0 0 0 0 0 0 0 0 0 0 0 0
2 2 2 2 2 2 2 2 2 2 2 2 2 2
March July mber March July mber March March July mber March July mber March
e e e e
v v v v
o o o o
N N N N
Source: Central Bank of Cyprus (2014)
FINANCING SMES IN CYPRUS: NO STONE LEFT UNTURNED? 7
In response to this situation, ACCA In particular, the Call for Evidence, and STATE OF SMES IN CYPRUS
launched an international Call for the research behind Talos’s study,
Evidence in March 2014 (ACCA 2014), focused on existing and underused The majority of SMEs in Cyprus are
inviting local and international options for: businesses employing up to nine
stakeholders as well as its members and employees, with an average of 2.1
students to share their views on the • accessing official funding from employees per business in that
situation in the country and what can be Europe or further afield category. Specifically, 92.5% of
done to make access to finance easier businesses (about 40,000) in Cyprus fall
for Cypriot SMEs. This study discusses • exploring options provided by State within this category, with 6.3% (about
the results of this Call for Evidence. Aid rules in order to allow the 2,600) falling in the 10–49-employees
government to support Cyprus’s category, 1.1% (about 500) in the
The Call for Evidence focused on the SMEs directly 50–249-employees category and 0.2%
options available to bankers, other (about 78) in the >250-employees
finance providers, entrepreneurs and • unlocking credit and liquidity in the category (Eurostat et al. 2013).
policymakers for financing Cyprus’s supply chains of major corporates
Small and Medium Enterprises (SMEs), and the government
starting from existing Access to Finance
policies and schemes that are either • overcoming restrictions placed on
underperforming under current liquidity the banks by liquidity and capital
and demand conditions or could be requirements
adjusted in order to perform better. It
also aimed to identify the unexplored • assessing the creditworthiness of
opportunities for financing SMEs, and informationally opaque businesses
the institutions and organisations that
may be able to help.   • sidestepping the banks and
appealing directly to investors to
finance SMEs, on a scalable basis
• accessing funding for SMEs through
the capital markets, either directly
or through customers with
uninterrupted access to them
• financing SMEs in Cyprus by offering
SME credit and equity to savers and
investors as alternatives to bank
deposits.
8
Each size band produces about the Almost 38% of all employees in Cyprus The data shows that SMEs, especially
same amount of revenue, about €2bn a work for businesses with 0–9 micro companies, are important in
year, making 250+ employee businesses employees; almost 23% work for Cyprus because of the large number of
the most productive per employee, with businesses with 10–49 employees; 20% people they employ.
close to €50,000 revenue per employee work for a company that employs
compared with about €41,000 revenue 50–249 people; and the remaining 20%
per employee for 10–49 and 50–249 work for companies that employ at least
employee size bands. In the 0–9-size 250 people.
band, each employee generates about
€27,000 in revenue.
Figure 1.6: Cypriot companies Figure 1.7: Output for the different size Figure 1.8: Distribution of employment
categorised by size, 2013 categories of Cypriot companies according to company size
50,000 5,000 100,000
40,000 4,000 80,000
30,000 3,000 60,000
20,000 2,000 40,000
10,000 1,000 20,000
0 0 0
8 9 0 1 2 3 4 8 9 0 1 2 3 4 8 9 0 1 2 3 4
200 200 201 201 201 201 201 200 200 201 201 201 201 201 200 200 201 201 201 201 201
Source: Eurostat et al.2013 Source: Eurostat et al.2013 Source: Eurostat et al. 2013 0–9
10–49
50–249
250+
Figure 1.9: SME share, 2013 Figure 1.10: SME output share, 2013 Figure 1.11: SME employee share, 2013
50–249
1%
10–49 19%
6% 26%
27% 250+ 38%
0–9 93% 250+ 0–9
0–9
50–249
50–249 20%
10–49
22%
10–49
25%
23%
Source: Eurostat et al.2013 Source: Eurostat et al.2013 Source: Eurostat et al.2013
FINANCING SMES IN CYPRUS: NO STONE LEFT UNTURNED? 9
2. Stakeholder interviews
A number of interviews were held with
local stakeholders as well as European BOX 2.1: INSTITUTIONS THAT PROVIDED THE PERSPECTIVES FOR THE
and International organisations to STUDY
identify common themes and different
opinions among interviewees, as well as • Bank of Cyprus
to solicit proposals to address the issue
• Bartercard Cyprus
of financing SMEs in Cyprus.
• CNBI
Each interviewee was asked a sub-set of
• Cooperative Central Bank of Cyprus
the structured interview questions
developed by Talos and ACCA that • Cyprus Business Angels Network
matched their personal background and
• Cyprus Chamber of Commerce and Industry
institutional agenda. Areas of inquiry
included what initiatives and new laws • Cyprus Commissioner for State Aid Control
the government needs to make, what
• Cyprus Federation of Industrialists and Employers
funding options and new programmes
the international community needs to • Cyprus Institute of Certified Management Consultants.
offer to help SMEs access funds, what
• Cyprus Securities and Exchange Commission
the banks need to do in order to
provide the liquidity and what SMEs • Directorate General for European Programmes, Coordination and
themselves need to start doing to gain Development of the Republic of Cyprus
access to liquidity.
• EY
The institutions that provided the • EU Commission’s Directorate General for Enterprise and Industry
perspectives for the study are shown in
Box 2.1: • European Association of Craft, Small and Medium-sized Enterprises
• European Banking Federation
• European Investment Bank
• European Investment Fund
• Fast Moving Consumer Goods Association Cyprus
• Hellenic Bank
• Infocredit
• Institute of Certified Public Accountants of Cyprus
• Institute of International Finance
• Ministry of Agriculture
• Ministry of Energy, Commerce, Industry and Tourism
• Ministry of Finance.
10