Title: Credit risk management for small and medium sized enterprises 

A study on how banks assess and manage risk and uncertainty when lending to SMEs.

Level: Master's thesis in business economics, 15 hp

Authors: Melker Paver & Isak Rosberg

Tutor: Hans Landström

Examiner: Per-Ola Ulvenblad

Date: 2024-05-27

Research question: 

·         How do banks assess risk and uncertainties in a credit assessment of SMEs?

·         How do banks manage risk and uncertainty of SMEs?

Purpose: The purpose of the study is to describe, analyze how Swedish banks assess and manage risk and uncertainty of SMEs

Theory: The theoretical framework is constructed based on sources and theories that illuminate the topics of risk, uncertainty, and credit risk management. Finally, a model is presented, based on the theoretical framework, which outlines the aspects to be considered in the data collection and analysis.

Method: To answer the questions and thereby achieve the purpose of the study, the authors have used an abductive approach. For the empirical data collection, the authors have carried out a qualitative research study supported by semi-structured interviews. With the background of the study’s analysis method, it is possible to ascertain how banks assess risk and uncertainty and how banks manage risk and uncertainty. 

Empirical Data: The collected empirical data has been obtained through six interviews with employees from six different banks. Five of the respondents worked at the bank as business advisors. The sixth respondent has many years of experience in business advisory and was the deputy branch manager. 

Conclusion: The conclusion describes how the assessment of risk and uncertainty is conducted during the credit granting process and how banks manage the risk and uncertainty associated with SMEs. The findings of the study indicate that a combined credit granting model is an essential component in the banks’ credit assessment and management. The results also demonstrate that the management of risk and uncertainty in credit granting to SMEs is a complex and varied environment that necessitates a careful balance between qualitative and quantitative analysis. The study highlights that the relationship between the borrower and the lender is the primary tool employed by banks in managing the risk and uncertainty associated with SMEs.