Bank of Lithuania
2018-10-31
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The latest survey of the Bank of Lithuania shows that the share of enterprises that raised wages somewhat reduced over the half-year. According to respondents, such trends should strengthen in the future due to potential financial resource constraints.

“This is a signal that rapid wage increases have already pushed some businesses to their limit. As a result, firms start actively looking for alternative ways to offset labour shortages, for example, invest in productivity-enhancing measures, which is important in terms of fostering competition. Looking ahead, growth in such investment is likely to gain momentum,” said Simonas Krėpšta, Director of the Financial Stability Department at the Bank of Lithuania.

Nearly half of the surveyed enterprises confirmed that labour shortages remained the main reason behind wage increases. A similar share of the surveyed believed that the same will also hold true over the next six month. On the other hand, compared to the previous half-year, the share of enterprises that raised wages reduced by 3 percentage points, while the share of those intending to increase wages in the upcoming half-year contracted by 7 percentage points (to 43%).

This might be explained by the lack in financial resources. According to survey results, more than half of the surveyed enterprises – 5 percentage points more than half a year ago – reported facing this problem. Limited access to financing was particularly relevant to enterprises engaged in construction activities (67%). As previously, firms intend to reduce labour market tensions through immigrant work which has gained traction among large enterprises and enterprises engaged in construction.

The survey also revealed that increasingly more enterprises are planning to finance their business activities with internal funds: roughly 46% of the surveyed firms reported that they intended to use them to finance 80-100% of their business activities (a year-on-year increase of 10 percentage points). Internal resources were the most relevant source of financing for construction enterprises, the least relevant for enterprises engaged in trade. Such trends are likely to stem from banks’ prudent credit policies applied to high-risk construction enterprises. However, bank lending remained the most popular source of external financing; according to survey results, 53% of enterprises (i.e. almost one tenth more than half a year ago) use or intend to use bank loans.

Similarly to half a year ago, nearly half of the surveyed reported that corporate lending was restrained: banks rejected loan applications, while firms were not satisfied with financing conditions.

“Our data indicates that lending to businesses is quite active, yet banks maintain a level-headed stance and apply strict lending standards. This shows that the lessons learnt from the last financial crisis have not been forgotten,” claimed Mr Krėpšta.

Tightening of lending conditions has most affected small and construction enterprises. The number of rejected loan applications or applications to change the terms and conditions of existing credit increased by almost 12 percentage points (to 34%) over the half-year (almost a fifth over the year). As before, applications of small and trade enterprises were rejected most often. The main reason behind application rejection was the poor financial health of enterprises (slightly more than a third of all rejected applications).

According to the data of the Bank of Lithuania, bank lending to enterprises posted a year-on-year increase of 13% in the second quarter of 2018, whereas the value of loans granted to small and medium enterprises grew by nearly one-tenth over the year.

 

The latest Review of the Survey of Enterprises (2018/2) is available here.