Credit risk mitigation and SMEs bank financing in Basel II : the case of the Loan Guarantee Associations
AbstractThe objective of this paper is to analyse the impact of the techniques foreseen in the Basel Agreement II (BII) for mitigating the risk of default on bank loans to small and medium enterprises (SMEs). In particular, we will conduct an analysis of the effect of the guarantees that the Loan Guarantee Association (LGA) offer to the SMEs on the assignment of capital requirements of the financial entities under BII. At the same time, the study will examine the effect of this guarantee on the credit risk premium that the financial entities should charge their clients, and whether this foreseeable decrease in the interest rates applicable to the SMEs is compensated by the cost of the guarantee. The results show that, considering that the cost of the LGA guarantee in Spain is around 0.68%, it will be advantageous for an SME with the annual sales of less than or equal to €5 million to request this guarantee whenever the probability of default (PD) of the LGA is
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Universidad Carlos III, Departamento de Economía de la Empresa in its series Business Economics Working Papers with number wb084011.
Date of creation: Sep 2008
Date of revision:
Credit risk mitigation; Bank financing of SMEs; Basel II; Loan Guarantee Association;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-13 (All new papers)
- NEP-BAN-2008-09-13 (Banking)
- NEP-EEC-2008-09-13 (European Economics)
- NEP-REG-2008-09-13 (Regulation)
- NEP-RMG-2008-09-13 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Repullo, Rafael & Suarez, Javier, 2003.
"Loan Pricing Under Basel Capital Requirements,"
CEPR Discussion Papers
3917, C.E.P.R. Discussion Papers.
- Decamps, Jean-Paul & Rochet, Jean-Charles & Roger, Benoit, 2004.
"The three pillars of Basel II: optimizing the mix,"
Journal of Financial Intermediation,
Elsevier, vol. 13(2), pages 132-155, April.
- Merton, Robert C., 1973.
"On the pricing of corporate debt: the risk structure of interest rates,"
684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-70, May.
- Clara Cardone Riportella & Antonio Trujillo Ponce, 2006. "EFECTOS DEL AVAL DE LAS SGRs EN LA FINANCIACIÓN DE LAS PYME Y LOS REQUERIMIENTOS DE CAPITAL DE BASILEA II," Documentos de Trabajo de EconomÃa de la Empresa db060302, Universidad Carlos III, Departamento de Economía de la Empresa.
- Kerkhof, F.L.J. & Melenberg, B., 2002.
"Backtesting for Risk-Based Regulatory Capital,"
2002-110, Tilburg University, Center for Economic Research.
- Dietsch, Michel & Petey, Joel, 2004. "Should SME exposures be treated as retail or corporate exposures? A comparative analysis of default probabilities and asset correlations in French and German SMEs," Journal of Banking & Finance, Elsevier, vol. 28(4), pages 773-788, April.
- Altman, Edward I. & Bharath, Sreedhar T. & Saunders, Anthony, 2002. "Credit ratings and the BIS capital adequacy reform agenda," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 909-921, May.
- Clara Cardone & Maria-Jose Casasola & Margarita Samartin, 2005. "Do Banking Relationships Improve Credit Conditions For Spanish Smes?," Business Economics Working Papers wb052806, Universidad Carlos III, Departamento de Economía de la Empresa.
- Lindquist, Kjersti-Gro, 2004. "Banks' buffer capital: how important is risk," Journal of International Money and Finance, Elsevier, vol. 23(3), pages 493-513, April.
- Giovanni Busetta & Alberto Zazzaro, 2009.
"Mutual Loan-Guarantee Societies in Monopolistic Credit Markets with Adverse Selection,"
Mo.Fi.R. Working Papers
33, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
- Busetta, Giovanni & Zazzaro, Alberto, 2012. "Mutual loan-guarantee societies in monopolistic credit markets with adverse selection," Journal of Financial Stability, Elsevier, vol. 8(1), pages 15-24.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.