chapter  4
SME credit decision making of savings versus big banks
WithFranz Flögel
Pages 134

This chapter presents the empirical results; i.e. it compares and contrasts the organisation of the processes of credit granting in regional savings and supraregional big banks and discusses the effects of these varying forms of organisation on SME finance. The chapter consists of three sections. Section 4.1 introduces the informational basis of credit decisions. It outlines the information banks use to screen and monitor SMEs, assesses the ‘softness’ of this information (Section 4.1.1) and describes basic calculations (e.g. cash flow, collateral values) that banks rely on for credit decisions (Section 4.1.2). Thus, Section 4.1 establishes the basis for the credit-granting process comparison. Section 4.2 compares the organisation of the processes of credit granting in savings and big banks with the focus on savings bank 1 and big bank 1. In line with the conceptual approach of this work to distance in banking under consideration of rating systems, the distance between all actors involved in the credit-granting processes is examined in Sections 4.2.1 to 4.2.5, while Section 4.2.6 deduces total distance of credit decisions. Section 4.3 turns to the effects of the varying forms of organisation of lending; i.e. it deliberates upon the way in which differences in the process organisation influence SME finance by tracing actual lending processes. To this end, Section 4.3.1 describes four customer cases of financially distressed SMEs observed at savings bank 1 and shows how the regional bank handles the controversial lending decisions. Section 4.3.2 brings together the findings concerning information, distance and credit decisions, and Section 4.3.3 deliberates on the willingness of the case study banks to support financially distressed SMEs and the effects of this on the credit portfolio, i.e. bad debt, of these banks.