SMEs’ financing in the aftermath of the financial and sovereign debt crises: A comparison across euro area countries

This paper studies the financing behaviour of SMEs across 11 euro area countries during the period 2010–2014. Using a firm-level and country representative survey, we construct time-varying country indicators of SMEs’ financing conditions accounting for composition and demand effects. We find a significant increase in the cross-country differences of the use of bank loans by SMEs. We decompose the variance of the time-varying country indicators to investigate two sources for this cross-country divergence: (i) an increase in the variance of shocks faced by the euro area, reflecting uncertainty; and (ii) heterogeneous deterministic paths, reflecting country-specific evolutions of factors such as financing costs, economic conditions or the banking environment. We find that the second mechanism is prominent: the cross-country divergence is mainly driven by a sharp increase (resp. decrease) in bank funding in countries where the use of bank loans by SMEs was originally high (resp. low). Additional results suggest that the increasing bank concentration, the reduction in the number of local branches and the decrease in the deposit-to-asset ratio explain the cross-country divergence regarding SMEs’ access to bank loans.