## Tackling Small and Medium Enterprise Problem Loans in Europe

_Staff Discussion Notes, March 30, 2015_

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**Canonical URL:** [Tackling Small and Medium Enterprise Problem Loans in Europe](https://www.imf.org/en/publications/staff-discussion-notes/issues/2016/12/31/tackling-small-and-medium-enterprise-problem-loans-in-europe-42614)

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## Bibliographic details
- Authors: Wolfgang Bergthaler, Kenneth H Kang, Yan Liu, Dermot Monaghan
- Published: March 30, 2015
- Series: Staff Discussion Notes
- DOI: https://doi.org/10.5089/9781498384834.006

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### Background and key problem
- The global financial crisis has left a large private sector debt overhang and high levels of non- performing loans (NPLs) in several European countries.
- Small and medium-size enterprises (SMEs) represent a significant and weak segment of the nonfinancial corporate sector.
- Addressing the SME loan problem in Europe is critical for strengthening bank and corporate balance sheets and supporting a more robust and sustained recovery.

### SME-specific restructuring challenges
- Legal challenges: a rigid and costly insolvency regime that differs from that applicable to larger corporates.
- Financial challenges: a higher fixed cost to loan restructuring for SME exposures.
- Market challenges: lack of alternative sources of financing for SMEs compared with larger firms.
- These SME-specific constraints make restructuring and resolution of SME problem loans more difficult and resource-intensive.

### Implications for banks and recovery
- SMEs’ large presence and close links to the banking system mean unresolved SME problem loans can perpetuate weak bank balance sheets.
- Effective resolution of SME NPLs is essential to support a more robust and sustained economic recovery in affected European countries.

### Policy directions and priorities (as emphasized in the note)
- Reform insolvency frameworks to reduce rigidity and cost for SME debt resolution.
- Lower fixed costs and procedural barriers to make loan restructuring for SMEs more feasible.
- Expand and facilitate alternative financing sources for SMEs to reduce reliance on bank lending and enable viable restructurings.
- Coordinate measures to strengthen both bank and corporate balance sheets, recognizing the systemic role of SME exposures.

*Tackling Small and Medium Enterprise Problem Loans in Europe — Wolfgang Bergthaler, Kenneth H Kang, Yan Liu, Dermot Monaghan, March 30, 2015*

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_Source: https://www.imf.org/en/publications/staff-discussion-notes/issues/2016/12/31/tackling-small-and-medium-enterprise-problem-loans-in-europe-42614_