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
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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;
Other versions of this item:
- Cardone Riportella, Clara & Trujillo Ponce, Antonio & Casasola, María José, . "Credit risk mitigation and SMEs bank financing in Basel II : the case of the Loan Guarantee Associations," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/2936, Universidad Carlos III de Madrid.
- 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.:
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Documentos de Trabajo de EconomÃa de la Empresa
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- Cardone Riportella, Clara & Trujillo Ponce, Antonio, . "Efectos del aval de las SGRs en la financiación de las PYME y los requerimientos de capital de Basilea II," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/424, Universidad Carlos III de Madrid.
- Cardone Riportella, Clara & Trujillo Ponce, Antonio, 2007. "Efectos del aval de las SGRs en la financiación de las PYME y los requerimientos de capital de Basilea II," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/7187, Universidad Carlos III de Madrid.
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