Professional Documents
Culture Documents
Management for
Examiners
SME Banking
1
What is SME
Defined by:
number of employees
sales volume
assets
Assets
Annual
Sales
Microfinanc
e
<10
<$100,00
0
<$100,00
0
Small
Enterprises
10<x<5
0
<$3
million
<$3
million
Medium
Enterprises
50<x<3
00
<$5
million
<$5
million
Definition
Business landscape
Definition
Bank definition
Many banks define SME in terms of their loan size.
Often defined as being loans between $1,000 and $250,000
or $300,000, sometimes up to $500,000.
SME characteristics
Often family
business
Traders predominate
(70%)
Often multiple
business pursuits
Lack formal
documents, records
rough
Collateral
Focus of
Analysis
Reliance on
formal
financial
statements
Industrial sectors/clusters?
Women entrepreneurs?
Main challenges?
Access to Finance?
SME Programmes?
12
Marketing
Prescreenin
g
Analysis
Approval/Pr
e-Disbursal
Monitoring
Problem
Loan
Manageme
nt
Marketing
Finding clients that fulfill eligibility requirements.
LOs approach a client, not the other way around, in order to
cut down on fraud.
Pre-screening
During Initial Meeting, examining to see if meets eligibility
requirements.
Making Snap Decision whether borrower meets minimum
requirements.
Most un-bankable proposals are excluded at this stage.
Analysis
CHARACTER
REPAYMENT CAPACITY
Evaluate
borrower
according to
RISKS
COLLATERAL
Approval
Credit Committee
Verification of Documents
Registration of Collateral
Informing Client of Obligations, need to Repay
Customer Service/Good Relations with Borrower
Monitoring
Continuous relation with the client.
Watching to detect problems as soon as possible.
Reminding borrower to repay.
Information sources
Information sources
Standardized
Defined
IRB
Calculated based on :
PD, LGD, ,
EAD
Qualitative requirements:
Quantitative requirements:
Capital relief:
Definition of a Retail
portfolio
private individuals
smaller companies
...
Max single credit of 1
million
Sufficient diversification of
the Retail portfolio
(Possibility: Max credit
volume of 0.2% of total
Retail
Portfolio)
Standard
risk weighting
of 75%
26
27
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28
Comparison
Capital Required For 100 Unsecured Loan
Basel I
100
100%
Corporate
Basel II
Standardised
Approach
20%
50%
100 X
100%
150%
5m
1.60
4.00
8% =
8.00
12.00
8%
8.00
Retail
100 X
75%
X 8% =
6.00
50m
Basel II
*11.3% - 14.4%
0.90 to 1.16
X
IRB Approach
100
X 8% =
(PD 0.03% to 20%;
X
LGD 45%)
188% to 238%
15.07 to 19.06
*Shows Firm size adjustment effect
From Basel II Annex 3
for Sales of 5m and 50m
4.45%
100 X
0.36
X 8% =
100.3%
8.02
29