Analysis on local banks’ credit assessments to small and medium enterprises - Using private bank T as an example

• Main Authors: Chung-Hsiu Liang, 梁忠秀
• Other Authors: Chiang-Fang Lin
• Format: Others
• Language: zh-TW
• Published: 2010
• Online Access: http://ndltd.ncl.edu.tw/handle/12693398161239098144

碩士 === 淡江大學 === 國際商學碩士在職專班 === 98 === Since the U.S. investment bank, Lehman Brothers Holdings Inc., filed for bankruptcy in the second half of 2008, global economic activities cooled down and deteriorated within a relatively short timeframe, invoking massive waves of unemployment and a global financial crisis that covered every corner of the world. It was not until 2009 that we began seeing hope for recovery. To most enterprises, being able to obtain continual financial support from financial institutions is ever more critical to their survival through a crisis, and to their perpetual business growth as well. This is also one of the keys to strengthen an enterprise''s business foundation and succeed during the future recovery. Taiwan''s corporations, which mainly consist of small and medium enterprises, have always been the backbone to the nation''s economic growth. According to the statistics published in the 2009 “White Paper on Small and Medium Enterprises” by the nation''s Small and Medium Administration, Ministry of Economic Affairs, domestic small and medium enterprises amounted to 1,235 thousand in 2008, representing 97.70% of all corporations; small and medium enterprises employed a total of 7,966 thousand staff in 2008, representing 76.58% of total employees nationwide. In addition, when we look back at the evolvement and advancement of Taiwan''s economy, small and medium enterprises not only played a vital role to the nation''s industrial reform, they had also made substantial contributions to the miracle growth of Taiwan''s economy. However, Taiwan''s small and medium enterprises were struck hard during the latest financial crisis since they are commonly small in business scope, constrained in market size, inadequate in capital, inaccurate in financial reporting, disadvantaged by deficient policies and insufficient information etc, and on top of which, the business performance of small and medium enterprises are easily affected by the movements of the external economic environment. In this research, we conducted in-depth interviews with credit staffs of all levels in the subject bank, with regards to the critical credit criteria for small and medium enterprises. The purpose of this research was aimed to investigate whether banks'' credit arrangements with small and medium enterprises established during normal circumstances could survive the impact of a financial crisis. If not, then what are the deficiencies in banks'' credit assessments and decisions? Do banks assess the credit qualities of small and medium enterprises differently during the financial crisis, as compared to the normal circumstances? Through the conclusions of this research, we strive to resolve the asymmetric financial information between small and medium enterprises and their banks, thereby providing win-win solutions to the suppliers of capital and those who need them. This research concluded that the credit decision criteria adopted by banks during assessment has decisive influences over the post-lending credit quality. In-depth interviews with small and medium enterprises credit staffs of all levels in subject bank T revealed that, prior to the financial crisis (i.e. the normal circumstances), credit assessments were mainly focused on the corporate borrower itself such as characteristics, capabilities, capitalization, collaterals, and uses of funds etc while lesser emphasis was placed on the future prospects of the external business environment which the loan applicant operated in; this affected the ability of a credit application to endure risks in volatile economies. All interviewees concurred that if the financial crisis develops further, they will adjust their future credit decision criteria to focus on corporate customers'' external factors, i.e. industry status, market competitiveness, industry ranking, industry demands and supplies, sources of repayment, business environment, future prospects etc.