The Impact of Relationship Lending on Bank Loan Process for Korean SMEs

We investigate the effects of the bank-firm relationships on the decision making process regarding loan application, loan approval, and loan interest rate. To do this, we use data from 2016, and 2017 Surveys of Korea Small Business Finance conducted by Industrial Bank of Korea. We found that a more intense bank-firm relationship increases the likelihood of loan approval. Also, SMEs borrowing from lower number of banks and with more concentrated loans in main bank seem to obtain credit from main bank at lower interest rate than others. But applying for a loan is not related to the bank-firm relationship. This findings suggest that a close bank-firm relationship can reduce information asymmetry problem and alleviate SMEs’ credit constraint. Also bank-firm relationships seem to be important in determining the loan interest rate. As a relsult, our findings support that relationship lending has a beneficial effect on the supply side of the Korean SME credit market.

Relationship lending and the use of trade credit: the role of relational capital and private information

Using a unique sample of Italian manufacturing firms, we investigate the impact of relationship lending on firms’ use of trade credit. We find that firms maintaining close and long-lasting relationships with their main banks are associated with higher amounts of trade credit extended by suppliers. This result is robust to alternative measures of trade credit and relationship lending, and to different estimation techniques. We also analyze the mechanisms driving the association between relationship lending and the use of trade credit. Regression results suggest that the positive link between accounts payable and relationship lending is especially significant for firms that use to provide soft information to their lenders and for companies with greater relational abilities.Plain English Summary The existence of close and long lasting lending relationships positively affects the amount of trade credit manufacturing firms receive from their suppliers. By relying on the Survey on Italian Manufacturing Firms, we show that the positive link between relationship lending and the use of trade credit is driven by two channels: private information and relational capital. In a policy perspective, our findings reveal a need for banking regulation and supervision to encompass banking business models in evaluating banks. The current approach might not be suitable for local banks investing in soft information acquisition and could weaken SMEs’ chances to receive both bank financing and trade credit from suppliers. Moreover, from a managerial point of view, our results uncover the relevance of firms’ ability to create strong relationships with banks, suppliers, and other companies that may help alleviating financial constraints.

Relationship lending and access to financial services by SMEs in Kenya

Policymakers and scholars acknowledge the significance of small and medium enterprises in stirring the economic growth and development in developing and developed economies. In spite of the generally fast pace by which access to financial services for small and medium enterprises is being established, significant segments of the small and medium enterprises sector do not yet benefit from the expansion. This study, therefore, investigated the effect of relationship lending on access to financial services by small and medium enterprises in Kenya. The study was based on credit rationing theory and information asymmetry theory. The target population comprised 4,253 small and medium enterprises in Kenya. A sample size of 366 SMEs was used by the study. The study adopted a multistage sampling technique to obtain the SME respondents. Primary data was utilized and was acquired through semi-structured questionnaires. Data were analyzed using descriptive and inferential statistics utilizing Heckman two-stage regression model. The study findings showed that relationship lending had a positive and significant effect on access to financial services among SMEs in Kenya. The study concluded that relationship lending plays a critical role in access to financial services by SMEs in Kenya. The study recommends that SMEs owners should strive to meet the terms and conditions provided by lending institutions in their various financing practices while management of the lending institutions should adopt financing practices favorable to SMEs to increase their access to financial services.

The Role of Banking Institutional Services on the Sustainable growth of SMEs in Cameroon

Banking institutions have been very instrumental to the growth of Small and Medium Sized enterprises in many developed economies, and they have been considered as one of the principal driving forces for economic development. The case has not been the same for Cameroon as owner managers of these SMEs have been complaining of the limited presence of banking institutions in solving their problems. Mindful of the fact that Cameroon has a growth vision to become an emerging economy by 2035, the country had to take giant steps to boast the growth of SME in the country. Some of these steps were the introduction of the small business law in 2010. This was all in a drive to ensure that SME play a vital role to the GDP growth, reduce unemployment, alleviate poverty and act as an engine for the country’s emergence growth drive. It is therefore in this light that a study was carried out on the role of banking institutional services on the sustainable growth of SME in Cameroon. A logistic regression model was adopted to examine the impact of banking institutions on the growth of SMEs in Cameroon. The data used in the study was extracted from the 2016 Cameroon Enterprise Survey which was collected from 361 enterprises by the National Institute of Statistics in the country. From the empirical results, it was discovered that 68.4% of the enterprises were growing as opposed to the 31.6%. Despite the high growth rate of these SME bank loans were affecting the growth of SME negatively while MFI loans, electronic banking services, internal funds and research and development were positively contributing to the growth of SME in the country. Thus, we concluded the study by emphasisng the implementation of relationship lending which will contribute positively to the growth of SMEs and more so fiscal policies should be ameliorated to boast the growth of startups businesses.

Competition, performance and financial stability in US agricultural banking

PurposeThe number of US commercial banks has declined by about 50% over the last two decades. This change could lead to a potential decline in competition and a potential increase in market power in the agricultural banking market. The focus of this study is to examine whether the risk of failure and the performance of agricultural banks has been affected by bank consolidations.Design/methodology/approachThe impact of bank competition on performance and financial stability of agricultural banks is studied using a Lerner index as a measure of market power. A Z-score is constructed to measure bank stability. Similarly, the return on assets (net income to total assets ratio), return on equity (net income to the total equity ratio), agricultural loan ratio and agricultural loan volume are used as performance measures for agricultural banks. Two-way fixed effect regression models are estimated to measure the impact of competition on financial stability and performance.FindingsResults indicate that bank competition has a U-shaped effect on the probability of default and an inverted U-shaped effect on volume and proportion of agricultural lending. There also exists evidence of a positive but non-linear effect of bank market power on the profitability of agricultural banks.Originality/valueThere is limited literature on the impact of bank competition on financial stability and performance of US agricultural banks. Agricultural banks hold more than 40% of US farm debt. A decrease in the number of banks or the level of competition in agricultural banking may cause an adverse effect on relationship lending. The key findings imply that bank regulatory strategies should focus on enhancing (reducing) competition in more (less) concentrated banking markets to improve the financial health and performance of agricultural banks.