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http://hdl.handle.net/2451/26406
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| Title: | GLOBAL EFFECTS OF THE NEW BASEL CAPITAL ACCORD’S IMPLEMENTATION ON SMES |
| Authors: | Altman, Edward I.
Sabato, Gabriele |
| Keywords: | SME finance
Bank capital requirements |
| Issue Date: | May-2005 |
| Series/Report no.: | FIN-05-005 |
| Abstract: | Using data from three countries (U.S., Italy and Australia) and
surveying related studies from several other countries in Europe, we
investigate the effects of the New Basel Capital Accord (Basel II) on
bank capital requirements for small and medium sized enterprises (SMEs).
For each country, we analyze different possibilities that banking
organizations have in considering SMEs, as either retail or as
corporate, with a special discount linked to the firm’s sales
size. We find, for all the countries, banks will have significant
benefits, in terms of lower capital requirements, when considering small
and medium sized firms as retail customers. But they will be obliged to
use the Advanced IRB approach (providing their own estimates of
probability of default (PD) and loss given default (LGD) for each
counterparty) and to manage them on a pooled basis. For SMEs as
corporate, however, the results show that capital requirements will be
slightly greater than under the existing Basel I Capital Accord. We
believe that most eligible banks will use a blended approach
(considering some SMEs as retail and some as corporate). Through a
breakeven analysis, we find that for all of our countries, banking
organizations will be obliged to classify as retail at least 20% of
their SME portfolio in order to, at a minimum, maintain the current
capital requirement (8%). Moreover, we show that the percentage of SMEs
to be classified as retail increases to at least 40% if banks will want
to enjoy lower capital requirements by implementing the Advanced IRB
instead of the Standardized approach. Since one of the main goals of the
new Basel Capital Accord is to improve the efficiency of banks risk
management systems, we conclude that a likely impact will be an
additional motivation for banks to consider and manage their SMEs
clients as retail customers. |
| URI: | http://hdl.handle.net/2451/26406 |
| Appears in Collections: | Finance Working Papers
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