SME banking is on the rise both in Turkey and in the rest of the world. Research suggests that on global markets SME banking accounts for an average of 16 percent of banks’ revenue. In Turkey the figures are even more striking. Just four years ago, SMEs accounted for 4 percent of total loans. In the first four months of 2007 they had reached 20 percent. Approximately 20 percent of banks’ profits come from SME banking.
In 2006 the international research company Mercer Oliver Wyman and EFMA prepared a report which shows the potential of Small and Medium-Sized Enterprises (SMEs) for all global financial services markets. It demonstrated that SME banking is now on the rise. The report notes that as of 2006 SMEs accounted for 16 percent of global banking revenue and forecast that the volume of SME banking will increase by 10 percent a year over the next three years.
SME banking is on the rise all over the world, particularly in Europe and the US. In some countries it accounts for over 25 percent of banks’ revenue. In developing markets such as Thailand and South Korea the expected annual growth rate is over 20 percent.
It is a similar picture in Turkey. Moreover, the potential is even greater. For example, in the developed economies of Europe the cash credits utilized by SMEs account for over 40 percent of total credits. But in Turkey the figure is considerably lower. On the other hand, over the last five years there has been a striking increase in the SMEs’ share in total credits. In 2002 the credits utilized by SMEs accounted for 4 percent of total credits. By 2007 this figure had risen to 20 percent. In some banks it is 35 percent.
Global Volume Stands At €635 Billion
In 2006 the total volume of SME banking worldwide stood at 635 billion Euro. 400 billion Euro of this total came from the SMEs’ own banking activities, while the remaining 235 billion Euro was from the retail banking services created by SMEs.
In Turkey 98 percent of all companies are SMEs. It is estimated that this means two million different businesses. On the other hand, SMEs provide 60 percent of all employment. The economic valued created by SMEs has reached 30 percent.
According to data released by the Banking Regulation and Supervision Agency (BRSA), the credits utilized by SMEs in Turkey account for 15-20 percent of the total. Turgut Boz, who is Deputy General Manager Responsible for Commercial Banking at TEB, says: “This shows that SMEs account for YTL 24-30 billion of the average YTL 160 billion commercial loans market.”
Continuing Rapid Profitable Growth
In the last few years in particular, banks which have concentrated on SME banking have both made significant investments and achieved a parallel growth. Garanti Bankası Deputy General Manager Nafiz Karadere says: “There has been an increase of 20 percent just in the number of our personnel,” and adds: “Since New Year the volume of our total SME business has risen by 20 percent.”
Bankers expect SME banking to continue to grow rapidly and profitably in the future. As a result of these forecasts, banks are assigning an important place to SME banking in their future calculations. Erol Sakallıoğlu, HSBC Deputy General Manager Responsible for Operational Banking, says that SMEs have the most important place in HSBC’s plans for the next five years.
Banks Use Four Different Models Worldwide
The Behemoth Approach
The study by Oliver Wyman and EFMA draws attention to the fact that in the world as a whole banks follow four different models in SME banking. One of these is the “Behemoth Approach”. Banks who adopt this approach aim to provide SMEs with products and services on a worldwide basis and target businesses of every size. They are experts in credit evaluation and customer relations in particular.
Banks which use this model usually focus on just one product and aim to be number one on the market with this product. They are experts at product segmentation. In every new initiative, they offer the customers the chance to try it and learn. They aim to provide the best price, the most suitable product and the fastest return in the fields in which they are active.
This is regarded as a high cost model. Banks which adopt this approach focus on branches which establish a special relationship with the customers rather than the classic branch model. The decision-making processes are centralized and automatic. This model is more commonly seen in strong local banks or in those which are customer-focused.
Banks which adopt this model focus on SMEs’ more complex needs and demands. They tend to target SMEs which do not want to remain medium-sized and which are looking to grow. They aim to provide SMEs with a tailor-made level of special products and services. These banks’ customers are generally those which provide them with guidance and are willing to pay the price of offering every kind of product and service to meet their complex needs.
Hande D. Süzer