Factors Influencing Credit Decision for Lending SMEs: A Case Study on National Bank of Egypt

Abstract

Small and Medium Enterprises (SMEs) play a vital role in the global economy. It had a major part in creating jobs and as a source of social stability, either there is major contribution for SMEs in Egypt as it faces great economy challenges that need cooperation from all parties. However, access to finance is still one of the greatest obstacles facing SMEs all over the world and prevents them from developing. This research is important to fill the research gap which appears in the limited researches that present main factors adopted by the credit decision maker in Banks for evaluating the SMEs. Purpose of this study is to make a progress for filling the gap through exploring these factors. The research was guided by the following research questions: What are the factors that influence credit decision making for lending SMEs? What framework is available to improve the SMEs lending process in the Egyptian Banks? Case study strategy and Quantitative Methods were adopted. Data was gathered from 313 structured questionnaires answered by credit risk and marketing employees from National Bank of Egypt (NBE). The author tested five hypotheses on the relationship between variables, with the SPSS "Package for the Social Sciences" and AMOS "Analysis of a Moment Structure". They were utilized to interpret the results. The findings provide evidence that factors, like Owner/Manager Character, Capacity, Firm Capital Size, Credit Bureau Report with the availability and Credibility of Financial statements, had a huge impact on Credit Decision for lending SMEs. From the research results, there was framework designing to enhance the credit risk assessment process, which could decrease the uncertainty and time consuming in the lending decision and it might reflect positively on the national economy development.

Determinants of Lending to small and medium Enterprises by Deposit Banks in Nigeria

“…While studies carried out by Omonigho (2017) and Iloh (2015) found a positive effect of bank credit on SME growth; studies carried out by Owolabi & Nasiru (2017) and Richard (2016) resulted in a negative relationship between bank credit to SME growth. The result from Benson (2017 andOkey (2016) concluded that there was an insignificant relationship between bank credit and SME growth. Iloh and Chioke (2015) asserted that the role of deposit money bank credits is vital to the development and growth of SMEs.…”

The Analysis of Corporate Governance on Non-Performing Loans: Evidence from Indonesia

“…The distribution of the loans is selective and structured. There are some aspects that banks usually consider when granting loans, such as the owner/manager character, capacity of the business, capital size, credit report, credibility, and the enterprise relationship between the bank and the borrower (Boushnak et al, 2018;Naima, Rahima, & Redouan, 2017). Despite the selective and careful consideration in granting loans, there is still a risk when a borrower defaults on a bank loan, which is called the credit risk (Heffernan, 2005).…”

Financial Statement Lending, Credit Information Sharing and Access to Financial Services by Small and Medium Enterprises in Kenya

“…Kwaning, Nyantakyi and Kyereh (2015) confirmed that credit expansion by financiers to borrowers will depend on audited financial statements because presentation of this statements increases reliability of debtor's hence lenders credit risk declines. Boushnak et al (2018) carried out a study on reasons that influences lending to SMEs by Egypt's National Bank. The result of the study indicated that credible financial statement positively and significantly influences securing of loan from banks.…”

“…Financial institutions emphasize on several requirements that SMEs cannot fulfill when making credit decisions. The goal of financial institutions is to maximize the profit as a result they will minimize credit risk and increase returns on credit facilities by trading with borrowers who can pay high cost of credit and have low credit risk (Boushnak, Rageb, Ragab & Sakr, 2018). Financiers always utilise certain criteria when assessing loan requests before a warding credit.…”

“…However, strict rules and regulations are observed before the loans are granted hence weakening access to funding by SMEs. When financial institutions requirements are not met by the borrower's requests, funding gap emerges leading to adverse loaning decision as well as limiting SMEs credit accessibility (Boushnak et al, 2018). SMEs evaluation and assessment principles are categorized into relationship lending, asset-based lending, financial statement lending and credit scoring lending (Kusi, Agbloyor, Ansah-Adu & Dako, 2017).…”