The bank lending process in an evolving economy : a focus on SMEs

Abstract

In an economy as small and open as the Maltese economy, changes continually permeate it and cause it to evolve. When the magnitude and nature of these changes are substantial, a permanent mark will be left. Such are the industrial restructuring process and the possible E.U. membership. The Maltese economy is dominated by Small and Medium sized Enterprises (SMEs). Described by many as a nation's economic powerhouse, these businesses are the most susceptible to changes affecting the economy. Local banks' exposure to SMEs is substantial. Therefore one can reasonably expect that banks, through their lending to SMEs will also be affected by changing economic characteristics that affect their customers. The lending process as applied by Maltese banks needs to be overhauled. Many state that it is ingrained in past due practices, focussing much on collaterals, rather than thorough examination of lending proposals. This dissertation will focus on the above-mentioned economic changes, and analyse the perspectives of bankers and SMEs alike in this regard. Focussing on SMEs, a critical analysis of the bank lending process, in the light of current banking practices is undertaken and a framework for improving this process is suggested.