The Number of Bank Relationships of SMEs: A Disaggregated Analysis of Changes in the Swiss Loan Market

Abstract

This paper investigates changes in the number of bank relationships of small and medium-sized enterprises in Switzerland from 1996Switzerland from to 2002 It differentiates between overall bank relationships and lending relationships and disaggregates the loan market with respect to firm sizes, industries and banking groups. On average, bank lending declined, and the concentration of lending relationships increased. The changes seem to have been driven by demand and supply for medium-sized firms, but only by supply for micro and small firms. Supply-side reductions resulted from a merger and changes in credit risk management by major banks. We find evidence of increasing specialization of larger banks on transaction lending and of smaller and regional banks on relationship lending.(J.E.L.: G21, G32).

Concentration of Banking Relationships in Switzerland: The Result of Firm Structure or Banking Market Structure?

“…The median number of bank relationships used for cash management purposes was two, and 41.7% of Swiss firms maintained only one bank relationship. Similar results have been found by Neuberger et al (2006) for Swiss SMEs in 1996 and 2002: the weighted mean number of overall bank relationships was 2.1 in both years, and the weighted mean number of lending relationships declined from 1.99 in 1996 to 1.59 in 2002. This decline seems to be due to a reduction of loan supply, which affected micro and small firms the most.…”

“…The use of mortgage and investment credits exerts a positive influence on the probability of multiple bank relationships and the number of banking relationships compared to the reference group of working capital credits, but only in the case of mortgage credits it is significant. This result for mortgage credits as a measure of loan demand corresponds to the results of Neuberger et al (2006). The insignificant effect of the use of investment credits, which showed a significant negative effect on the number of lenders in the latter study may be explained by the fact that this variable is not only a measure of demand for financial services, but also of credit risk, which is likely to be borne by a relationship lender.…”

“…Consistent with the hypothesis that state-owned or small banks specialize in relationship lending, some researchers (including Neuberger et al 2006, for Switzerland) have found a negative influence of borrowing from a state-owned or mutual bank on the number of lending relationships. While conclusions about banking group behavioral differences are tentative, the role of state ownership in the Swiss banking sector has been more directly studied for the mortgage loan market by Bichsel (2006).…”

“…2 For a discussion of different measurements of banking relationships and their use in previous studies seeNeuberger et al (2006). In contrast to the present study, the latter focuses on the changes in lending relationships of Swiss SMEs between 1996 and 2002.…”

Microenterprises and multiple bank relationships: The case of professionals

“…All previous studies refer to small, medium and large firms (see Table 1), with the exception of Harhoff and Körting (1998b) and Neuberger et al (2006), who examine also microenterprises. None of the previous studies investigates the financing of professionals as microenterprises.…”