How an increase in the policy rate affects loans for small and medium-sized businesses (SMEs)
An increase in the policy rate of the National Bank of Ukraine (NBU) by 0.5 percentage points to 16% does not automatically mean a rise in the cost of loans for small and medium-sized businesses (SMEs). This was the view expressed by Oksana Shulha, director of the small and medium-sized business department at Globus Bank, who explained why a change in the policy rate does not translate directly into the interest a client pays.
“There is no direct arithmetic link between a decision by the National Bank of Ukraine and the actual rate on a specific loan. The cost of funding is influenced by the bank’s resource base, the loan term, the borrower’s risk, market competition, and, in the case of partner or state programmes, by compensation mechanisms. Therefore, in October we do not expect a sharp revision of lending terms for SMEs,” the banker said.
In other words, the NBU rate is an important benchmark but not the only factor. The real price of a loan is affected by a bank’s funding structure, the loan term, the borrower’s individual risk and the competitive situation on the market.
Parameters of partner programmes and the typical loan profile
According to Oksana Shulha’s forecast, partner programmes between banks and manufacturers and suppliers of machinery, equipment and transport — as well as state support programmes for business — will remain the most competitive until the end of the year. Within partner programmes, over 65% of loans are for amounts from UAH 1 million to UAH 3 million, which gives an indication of typical business borrowing needs.
These are most often loans with terms of between 3 and 5 years, and depending on the product and deal parameters, rates can be approximately 15−18% per annum. Additional compensatory mechanisms in partner programmes change the real cost of financing and mitigate the effect of the policy rate increase.
What an entrepreneur should look at before taking a loan
Oksana Shulha notes that for an entrepreneur the economics of the loan itself are becoming increasingly important, not just the nominal rate. If an investment through a partner programme provides equipment or machinery that immediately begins to generate income, the monthly payment may be comparable to the business’s cash flows and the loan remains a working instrument even with a higher policy rate.
The risk of the particular borrower and the bank’s resource base often matter more than a 0.5 percentage-point increase in the policy rate to 16%. Therefore banks and entrepreneurs should assess a loan through the lens of term, risk and the expected return on the investment, rather than solely by the nominal interest rate.
