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Impact of Basel II Capital Accord on Small and Medium Size Enterprises (SME): An Empirical Study on a Group of Export Oriented SMEs

Pouya Baghdadi (), Ahmad Akbari (), Ali Hassanzadeh (), Seyed Morteza Zekavat () and Farhad Taghizadeh-Hesary ()
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Pouya Baghdadi : School of Economics, University of Sistan and Baluchestan, International Campus
Ahmad Akbari : University of Sistan and Baluchestan
Ali Hassanzadeh : Islamic Azad University
Seyed Morteza Zekavat : Export Development Bank of Iran

Journal of Money and Economy, 2014, vol. 9, issue 1, 117-146

Abstract: The purpose of this study is to find the relationship between lending to Small and Medium-size Exporter Enterprises (E-SMEs) and the use of Basel II Capital Accord for the first time in the banking system of Iran. Results showed that 96.69 percent of small firms were in the very low risk category of credit portfolio. This proof explains a consistent and balanced relationship between risk- weighted assets distribution system (RWA) in Basel II Capital Accord and firms' size. In other words, the smaller the size of the firm, the smaller their risk-share in the credit portfolio would be. Furthermore, according to the results found by Probit regression with an endogenous covariate, the higher ratings the firm recovers, the less risk-share in bank's portfolio the firm will enjoy. Thus, it is indispensable that banks, chiefly specialized banks, should take action towards the allocation of parts of the credit portfolio to SME exporter financing. Accordingly, it is essential to design particular credit scoring models for these firms.

Keywords: Exporter SMEs; Basel II; Capital Requirements; Probit Model; Credit Risk (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2014
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Handle: RePEc:mbr:jmonec:v:9:y:2014:i:1:p:117-146