One approach to risk management in SMEs banking

Abstract

The purpose of this paper is to investigate the key determinants of relations between banks and small and medium-sized enterprise segment (SME) in the context of SME banking value chain and credit risk management. Due to a limited number of sources of financing, SMEs often opt for cooperation with the banking sector. On the other hand, most of the banks form separate departments for the cooperation with the SME segment, not only in the field of credit, but also in the field of various advisory services offered by banks. The paper draws on SME financing and banking management literature and discusses conceptual models of credit risk management. The research finds that the stability of the banking sector is greatly influenced by the condition and development of the entire financial system of a country, so it is essential that banks take into account the liquidity and adequate resource policy. Bank performance depends on the chosen way of generating revenue (amount of profit), the required quality of assets (risk level) and the defined level of efficiency in operations (operational expense). The findings of the paper highlight the importance of risk management and the complexity of the credit analysis function in banks, as well as provide an overview of quantitative methods for measuring credit risk.