Analysis of credit ratings for small and medium-sized enterprises

Evidence from Asia

Naoyuki Yoshino, Farhad Taghi Zadeh Hesary

Research output: Contribution to journalArticle

22 Citations (Scopus)

Abstract

In Asia, small andmedium-sized enterprises (SMEs) account for the major share of employment and dominate domestic economies, yet providing these companies with access to finance is a challenge across the region. Asian economies are often characterized as having bank-dominated financial systems and underdeveloped capital markets, in particular with regard to venture capital. As a result, banks are the main source of financing for SMEs. It is crucial for banks to be able to distinguish healthy from risky companies. If they can do this, lending and financing SMEs through banks will be easier. In this paper, we explain the importance of SMEs in Asia. Then, we provide a scheme for assigning credit ratings to SMEs by employing two statistical analysis techniques—principal component analysis and cluster analysis—applying 11 financial ratios of 1,363 SMEs in Asia. If used by the financial institutions, this comprehensive and efficient method could enable banks and other lending agencies around the world, and especially in Asia, to group SME customers based on financial health and adjust interest rates on loans and set lending ceilings for each group.

Original languageEnglish
Pages (from-to)18-37
Number of pages20
JournalAsian Development Review
Volume32
Issue number2
DOIs
Publication statusPublished - 2015 Sep 1
Externally publishedYes

Fingerprint

small and medium-sized enterprise
credit
rating
bank
evidence
lending
financial system
capital market
interest rate
venture capital
analysis
Asia
finance
economy
statistical analysis
loan
small group
customer

Keywords

  • Asian economies
  • SME credit rating
  • SME financing

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Development

Cite this

Analysis of credit ratings for small and medium-sized enterprises : Evidence from Asia. / Yoshino, Naoyuki; Taghi Zadeh Hesary, Farhad.

In: Asian Development Review, Vol. 32, No. 2, 01.09.2015, p. 18-37.

Research output: Contribution to journalArticle

@article{9238643fa37e4bd28bd2d0ceb00a1161,
title = "Analysis of credit ratings for small and medium-sized enterprises: Evidence from Asia",
abstract = "In Asia, small andmedium-sized enterprises (SMEs) account for the major share of employment and dominate domestic economies, yet providing these companies with access to finance is a challenge across the region. Asian economies are often characterized as having bank-dominated financial systems and underdeveloped capital markets, in particular with regard to venture capital. As a result, banks are the main source of financing for SMEs. It is crucial for banks to be able to distinguish healthy from risky companies. If they can do this, lending and financing SMEs through banks will be easier. In this paper, we explain the importance of SMEs in Asia. Then, we provide a scheme for assigning credit ratings to SMEs by employing two statistical analysis techniques—principal component analysis and cluster analysis—applying 11 financial ratios of 1,363 SMEs in Asia. If used by the financial institutions, this comprehensive and efficient method could enable banks and other lending agencies around the world, and especially in Asia, to group SME customers based on financial health and adjust interest rates on loans and set lending ceilings for each group.",
keywords = "Asian economies, SME credit rating, SME financing",
author = "Naoyuki Yoshino and {Taghi Zadeh Hesary}, Farhad",
year = "2015",
month = "9",
day = "1",
doi = "10.1162/ADEV_a_00050",
language = "English",
volume = "32",
pages = "18--37",
journal = "Asian Development Review",
issn = "0116-1105",
publisher = "Asian Development Bank",
number = "2",

}

TY - JOUR

T1 - Analysis of credit ratings for small and medium-sized enterprises

T2 - Evidence from Asia

AU - Yoshino, Naoyuki

AU - Taghi Zadeh Hesary, Farhad

PY - 2015/9/1

Y1 - 2015/9/1

N2 - In Asia, small andmedium-sized enterprises (SMEs) account for the major share of employment and dominate domestic economies, yet providing these companies with access to finance is a challenge across the region. Asian economies are often characterized as having bank-dominated financial systems and underdeveloped capital markets, in particular with regard to venture capital. As a result, banks are the main source of financing for SMEs. It is crucial for banks to be able to distinguish healthy from risky companies. If they can do this, lending and financing SMEs through banks will be easier. In this paper, we explain the importance of SMEs in Asia. Then, we provide a scheme for assigning credit ratings to SMEs by employing two statistical analysis techniques—principal component analysis and cluster analysis—applying 11 financial ratios of 1,363 SMEs in Asia. If used by the financial institutions, this comprehensive and efficient method could enable banks and other lending agencies around the world, and especially in Asia, to group SME customers based on financial health and adjust interest rates on loans and set lending ceilings for each group.

AB - In Asia, small andmedium-sized enterprises (SMEs) account for the major share of employment and dominate domestic economies, yet providing these companies with access to finance is a challenge across the region. Asian economies are often characterized as having bank-dominated financial systems and underdeveloped capital markets, in particular with regard to venture capital. As a result, banks are the main source of financing for SMEs. It is crucial for banks to be able to distinguish healthy from risky companies. If they can do this, lending and financing SMEs through banks will be easier. In this paper, we explain the importance of SMEs in Asia. Then, we provide a scheme for assigning credit ratings to SMEs by employing two statistical analysis techniques—principal component analysis and cluster analysis—applying 11 financial ratios of 1,363 SMEs in Asia. If used by the financial institutions, this comprehensive and efficient method could enable banks and other lending agencies around the world, and especially in Asia, to group SME customers based on financial health and adjust interest rates on loans and set lending ceilings for each group.

KW - Asian economies

KW - SME credit rating

KW - SME financing

UR - http://www.scopus.com/inward/record.url?scp=84947446141&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84947446141&partnerID=8YFLogxK

U2 - 10.1162/ADEV_a_00050

DO - 10.1162/ADEV_a_00050

M3 - Article

VL - 32

SP - 18

EP - 37

JO - Asian Development Review

JF - Asian Development Review

SN - 0116-1105

IS - 2

ER -