Banking relationship in the context of international accounting standards for small and medium enterprises in Portugal

Abstract

Small and medium-sized enterprises (SME’s) are crucial to wealth and employment creation in every economy. However, they have not available the same financial resources or the access to financial sources as the big companies. That is the reason why the banking relationship is very important since banks have been their most important financial provider and, certainly, their main financial information user. Nevertheless, little is known about banking and SME relationship, namely in the aftermath of the Basel II Agreement and the adoption of international accounting standards. Getting this knowledge allows market regulators to develop the necessary policies that incentives credit to the economy and assures the creditors interests. Therefore, this study aims to characterize banking relationship with SME’s in Portugal. To achieve this aim a postal questionnaire was conducted, through February to April 2007 and applied to all financial institutions operating in Portugal that have business relation with SME’s. The response rate was 34,9%. The main conclusions are that there is heterogeneity in defining what a SME is, they have different credit segmentation typology and SME’s financial statements information is validated as it is audited. Besides, banks do not expect any change of banking relationship with SME´s due to international accounting standards.