Small Banking and Financing: a Global Perspective

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Small Banking and Financing a Global Perspective

• The effects of Basel II requirements on
  banks-SMEs relationship the case of the
  handicraft firms
• Annarita Trotta - Marianna Mauro
• University of Catanzaro, Italy
• trotta_at_unicz.it
• mauro_at_unicz.it

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Overview

• Introduction
• Objective
• Background
• Methodology
• Main Result
• Conclusion.

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Introduction
Basel II Agreement
The Rating Philosophy

• Quantitative Analysis
• Qualitative Analysis
• Analysis of Guarantees

Bank-Small Firm Relationships
Communication
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Objective
The research is aimed at identifying
1. The real situation of bank-small firms
relationship
2. The level of qualitative and quantitative data
that SMEs can transfer to the system
3. The perspectives of survival and development
under the new Basel agreement.
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Background (1/2)
Basel II the link between rating and credit
cost will be more solid, more structured and
more transparent
Could this generate a financial restrictive
effect for SMEs?

• Increase of the interest rate

Increase of guarantees required
CONFIDI
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Background (2/2)
Basel II will impose a change in small firm
bank relationships
SMEs

• Informative opacity (Stiglitz and Weiss, 1981)
• Vulnerable on the financing aspect (Berger and
  Udell, 1998 Udell, 2004)
• Overlapping among family, property and management
  (Davis Tagiuri, 1989 Astrachan, J. H. Klein S.
  B., Smyrnios, K. X., 2002)
• Absence of external stakeholders (Paoloni
  Demartini, 1997)

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Methodology (1/2)

• The questionnaire is divided into 2 sections
• Basic information about the firms
• Data and indicators concerning financial
  position.

To carry on the research the questionnaire
methodology is been chosen.
Handicraft firms located in
Catanzaro Unioncamere Database
Sample Investigated
Source
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Methodology (2/2)

• The sample has been defined adopting a simple
  random sampling without replacement.
• Sampling error 4
• Confidence level 95.
• Sampling number 566 units (sampling fraction
  equal to 8), which has been extended to 600 in
  order to cover a non response rate of 6.
• Statistical analysis is based on the application
  of t-test, ANOVA procedure and chi-square test
• When the number of statistical units was not
  enough to apply parametric procedures and
  normality conditions were not meet, the
  equivalent non-parametric methods have been
  applied (the Kruskal-Wallis k-independent samples
  test and Mann Whitney U test).

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Main Result (1/4)

• Answers received 246 (Non response rate 59)
• Main characteristics of the sample

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Main Result (2/4) SMEs informative capacity
Ownership structure
Sole Proprietor 87
Implication of family effect

• Pocketbook not diversified
• Inefficient financial management
• (In the 85 of cases a responsable for finance
  doesnt exist)
• Financial structure not efficient
• Stakeholders proprietor, financer (banks) and
• taxation office

The risk is high
Information not important
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Main Result (3/4) Banks-SMEs relationship

• Main characteristics of the sample (continue)

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Main Result (4/4)- Basel II influence

• Same Correlation
• The Cost of Debt Capital (interest rate) is not
  associated to
• the firms dimension
• the short and medium/long term liabilities.
• There is a Significant Association among the
  recourse to Confidi and
• The requirement of guarantees
• The required of an higher indebtedness level
• The indebtedness.

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Conclusion

• There is informative opacity that could limits
  SMEs in the access to credit

Its necessary
To improve finance function
To communicate
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Future research

• To define a risk level for micro-entities
  analysed
• Construction of a model for the appraisal of the
  credit risk - according to Basel 2- usable from
  the banks and for SMEs.

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.the financer

• Chamber of Commerce of Catanzaro
• Confartigianato of Catanzaro
• Catanzaro Production Activity Government.