To gain a better insight into the potential and prospects of SME banking, we shall start by taking a look at the significance which is being attributed to small-, medium- and micro-sized enterprises in a broader economic context.
While their individual size4 and impact may be small, they constitute a major force in the national economies in many ways. Representing, on average, 99.7 of 100 companies operating in each of the European Union’s 27 coun-tries5, SMEs and Micros generate more than two-thirds of all jobs, many of them in rural areas, and 60% of value-added – with varying shares in different industrial sectors. On their way to becoming mature economies, countries have appreciated their SMEs as the backbone of the economy and as a tool for diversification and the elimination of concentration risks, mitigating the impacts of negative macroeconomic situations on productivity, job market, and growth.
Moreover, national economies can rely on SMEs to act as innovation drivers, as well as on their flexibility and the entrepreneurial spirit introduced by these often owner-run businesses.
However, the strength of national SME sectors and their impact on the economies, as well as their investment activities and need for financing, correlates with the level of the overall market’s maturity. Chart 1 illustrates show CEE countries have recently advanced to become developed market economies, as measured by the expansion of the countries’ GDP per capita and the banking sector’s total assets.