Bank Risk Management in the Process of SME Financing: Balancing Profitability and Stability

Small and medium-sized businesses play a key role in economic development, underscoring the importance of bank financing for such enterprises and, at the same time, the need for effective management of credit, liquidity, and operational risks for banking institutions. In conditions of economic instability, high uncertainty, and limited access to financial resources for SMEs, finding a balance between achieving profitability in banking operations and maintaining financial stability and an acceptable level of risk becomes particularly important. The article aims to substantiate theoretical and methodical approaches to bank risk management in the process of financial intermediation aimed at ensuring the liquidity and solvency of small and medium-sized enterprises. The research methodology combines theoretical generalization, a systematic approach, and structural analysis. The disclosure of the relationships among risks, bank profitability, and the financial stability of SMEs was carried out using the tabular method and logical generalization, which provides a visual presentation of the results and enhances their analytical interpretation. The authors also used the provisions of international Basel III standards and modern approaches to credit risk assessment. The results of the study show that credit risk is the dominant factor influencing the stability of banking activities due to the high probability of borrower default and the instability of enterprise cash flows. The article proposes an approach to assessing credit risk and risk-adjusted profitability using PD, LGD, and EAD models, along with the RAROC indicator. Today, effective risk management involves the use of innovative digital technologies, Big Data analytics, machine learning, and automated scoring systems. At the same time, the Basel III regulatory requirements and NBU regulations also play an important role in ensuring the stability of the banking system. Thus, the combination of the tools described in the article with compliance with regulatory norms enables achieving an optimal balance between banks' profitability and SMEs' financial stability.