The effects of Basel II capital adequacy on banking sector and SMEs


URAL M., Demireli E.

IKTISAT ISLETME VE FINANS, vol.24, no.274, pp.54-78, 2009 (SSCI) identifier

  • Publication Type: Article / Article
  • Volume: 24 Issue: 274
  • Publication Date: 2009
  • Doi Number: 10.3848/iif.2009.274.6203
  • Journal Name: IKTISAT ISLETME VE FINANS
  • Journal Indexes: Social Sciences Citation Index (SSCI)
  • Page Numbers: pp.54-78
  • Keywords: Basel Accords, SME, Rating, Credit Price
  • Dokuz Eylül University Affiliated: Yes

Abstract

After the economic instabilities and crises, which were often seen in global financial system especially in 1990's, the Basel Capital Accord has been constituted in order to determine the international standards in risk management and increase the regulatory effectiveness in the banking system. In Basel II Accord, which imposes and emphasizes the rating system, the ratings of the Small and Medium-Sized Enterprises (SMEs) will drop as they declare lower endorsement for lower tax responsibility Since this will increase the capital requirement for the banks, the price of the loans demanded by the companies will also increase. In this work, both the minimum capital requirement for the banks, and the price of the loans are calculated with different credit risk measurement approaches depending on the development of the ratings of two hypothetical companies,one Retail SME and the other Institutional SME. According to the results of this work, by using Internal Ratings Based (IRB) Approach, an increase in the company ratings lowers the capital requirement for the banks, and this leads to a decrease in the loan prices.