Neither True-friend nor Fairweather friend: Relationship Banking and SME borrowing under Covid-19

Tianshu Zhao, Kent Matthews and Max Munday ()

No E2021/25, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: A growing literature addresses the costs and benefits associated with relationship banking, particularly for smaller firms, but with much of this work focused on normal trading conditions. Covid-19 provides an ideal testbed to explore the resilience of relationship banking. We examine whether the presence of closer pre-Covid ties between SMEs and their banks helps in accessing funds in the Covid-19 pandemic period. Then are ties between relationship bankers and SME borrowers a case of true love or rather are the parties more akin to fair-weather friends ? Data from the UK SME Finance Monitor from 2018Q2-2020Q3 is used to examine this question. Our analysis suggests that relationship banking was important for the acquisition of bank credit pre-Covid-19 but was of limited influence in post-Covid-19 lending behaviour. Banks treated SMEs that had a good relationship with them in the same way as those that did not and with public interventions to support lenders material in this.

Keywords: Covid-19; Relationship Banking; SMEs (search for similar items in EconPapers)
JEL-codes: G21 G28 G40 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2021-10
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-ent, nep-fdg and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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