At Blue Colibri's III Connect Conference, economist Nóra Szeles, CEO of the first Hungarian community finance provider, Tőkeportál, moderated a panel on the challenges facing SMEs in 2024, focusing on financial sustainability.
Three top speakers came to share their professional views and experiences on the topic: Bernadett Dancsné Engler, Head of Micro and Small Business at OTP; Ádám Balog, former Vice President of the MNB, former CEO of MBH Bank, now Vice President of the Budapest Chamber of Commerce and Industry, now an investor and Péter Oszkó, former Minister of Finance, now an investor and Managing Director of OXO Technologies Holding.
In case you missed the discussion, here are the key details.
If an SME wants a bank account or overdraft facility, it can access it from pretty much anywhere. The interest rate environment is the same, the pricing is broadly the same, and the yield environment is the same for banks. In the micro and small business sector, OTP is the leading provider (30%; they deal with clients up to about one billion HUF in turnover). At the Connect discussion, Bernadett Dancsné Engler highlighted that since it is almost impossible to differentiate between banks in terms of products and services, OTP's impressive market share is due to other factors.
"Our motto is that you should do everything you can to make sure that a business really does what it does best, what it does best, and we'll do everything else in a way that's almost invisible." If a micro or small business has to deal with how electronic banking, a bank account or a loan works, that's a problem. "We should have to deal with that! You certainly should not," Bernadett elaborated on the key role of processes.
The expertise and training of the administrators and bank colleagues are also a decisive factor. "They help to make it easy to navigate in this world," Bernadett expressed. For example, it is important to give the best advice when a small business needs a loan, to offer a bank account where costs can really be optimized, with features that the entrepreneur will definitely use, and to give credit or other services that will be of sustainable benefit to the business. After all, who wants to pay for something they're not going to use?
With 90 percent of all data available from public databases, Bernadett pointed out that when applying for a loan, for example, they are more concerned with the purpose of the loan rather than asking for a long list of documents. Once they understand what the loan objective is, it will be clear which loan structure best suits them. This also makes life easier for micro and small businesses.
It's good to have a financial expert to help you look at the options and what the entrepreneur should be thinking about (whether there will be a return on investment, or when there will be debt service or liabilities, whether there will be income, etc.). This is the case with smooth banking, which is optimized to ensure that the entrepreneur spends as little time as possible, preferably zero, on these issues and document gathering.
The Budapest Chamber of Commerce and Industry (BKIK) represents the interests of 300,000 businesses in Budapest. Ten thousand entrepreneurs are also voluntary members of the Chamber system, paying more than the standard annual registered membership fee. These are the officers, the members, who work in the Chamber because they believe they can help their area, their industry, by voluntarily supporting the sector, the world of business, said Vice-President Ádám Balog. The service part of the chamber has an active role in adult education, dual training, master's programs, and has a legal responsibility and opportunity to act there.
The Vice President stressed that BKIK should also help entrepreneurs to understand the financial and innovation system, the ESG ecosystem, etc. "The Chamber is also the face of entrepreneurs, which must constantly say that yes, yes, the entrepreneur is important, the entrepreneur is the one on whom the modern market economy is built", added Ádám Balog.
ESG was also discussed separately in the panel discussion. This relatively new reporting and rating system aims to assess environmental, social, or governance damage. According to Ádám Balog, since ESG, environmental sustainability, and social sustainability are difficult for a company to understand intuitively, it is particularly important to be aware of them. "You either have to learn or you have to pay those who understand. Because maybe not today, but in three years at the latest, whether we can get grant money, capital money or loan money will depend on where we are in this ESG ranking," he elaborated.
BKIK also supports businesses in Budapest in the area of financial awareness. Whether with concrete assistance (e.g. Széchenyi card loans are also marketed by the Chamber of Industry and Commerce) or with guidance. Ádám Balog added that anyone who has a question can turn to the Chamber, and even if BKIK does not solve it, it can still help those who do.
According to Péter Oszkó, an entrepreneur is usually someone ready to adapt to new environments and challenges every day. However, the last few years have brought surprises. "We had a decade when we believed, almost for a long time, that with invisible interest rates and a continuous stimulative monetary policy, there would be economic growth without inflation. Although this has contradicted all theories, which turn out to be true sooner or later," he said. According to him, COVID, the war, and the recession all pointed in the direction that the macro environment will not return to what it was in the 2010s: money will have a price. So you have to work with finance in a way that it is not a gift, you have to earn its cost - it will be around 6-8 percent in terms of the forint - he added.
To adapt to an ever-changing environment, businesses today need to focus on productivity, says Péter Oszkó. Funding is available, resources will be available, but you need to think carefully about for what you should take it and spend on.
SMEs need to achieve business results from the resources they raise that will recoup these costs, and they need to do so as efficiently as possible. The market will be one livelier, the former finance minister said, but businesses must raise funds in a much more conscious and thoughtful way, with more precise planning and by continuously improving productivity.
Péter Oszkó said that in today's business world, ESG is already affecting resource costs. The investment world, the institutional world, is now willing to factor this into their return expectations if the company they are financing is also mindful of such aspects. "Our whole lives, our whole social environment is affected by ESG, and that obviously affects labor productivity, environmental sustainability, everything - but it's with a significantly increased awareness that we can do business and manage successfully in the next decade."
Just as in the world of lending and financing, there was a lot of room for error in the world of capital investment in the 2010s. There was a lot of money in the market and investors had to spend. Many investments that otherwise did not work out well were the result, but there was also a lot of "room for error". The number of these opportunities for error has been reduced - said Péter Oszkó.
Investors are now much more cautious, expecting much faster results and forcing companies to operate as stand-alone businesses much sooner. Every investor now expects the company seeking capital to reach the next revenue-generating, even self-sustaining, operating state with a minimum margin for error. The next round will be involved when it is no longer a question of survival whether the company will receive capital, but whether it will be able to conquer the next market or develop the next product.
