Back to Search Start Over

Relationship Banking, Collateral, and the Economic Crisis as Determinants of Credit Risk: An Empirical Investigation of SMEs.

Relationship Banking, Collateral, and the Economic Crisis as Determinants of Credit Risk: An Empirical Investigation of SMEs.

Authors :
Krasniqi, Besnik A.
Kotorri, Mrika
Aliu, Florin
Source :
South East European Journal of Economics & Business (1840118X); Dec2023, Vol. 18 Issue 2, p49-62, 14p
Publication Year :
2023

Abstract

This study examines the impact of relationship banking and collateral on the probability of firm loan default in Kosovo. Using a sample of 2,320 loan-level data from an individual bank credit register, findings indicate that stronger firm-bank relationships reduce the probability of default, and tighter credit policies regarding higher collateral requirements and interest rates have the opposite effect. Re-specifying the model to control for the banking sector concentration Hirschman-Herfindahl Index (HHI) and the Net Interest Margin (NIM), the firm-bank relationship is no longer statistically significant. Results show that the crisis negatively impacts credit risk, while HHI positively affects the probability of loan default. This evidence suggests that banking relationship matters only in competitive markets. To test the potential interaction effect between relationship banking and collateral, Fairlie's (1999) decomposition technique is deployed. Our results imply that high concentration levels in the banking sector render firm-bank relationships relatively less important. This is of utmost importance for SMEs, banks, and policymakers. [ABSTRACT FROM AUTHOR]

Details

Language :
English
ISSN :
1840118X
Volume :
18
Issue :
2
Database :
Complementary Index
Journal :
South East European Journal of Economics & Business (1840118X)
Publication Type :
Academic Journal
Accession number :
174181447
Full Text :
https://doi.org/10.2478/jeb-2023-0018