Small Banks In The Sme Relationship Lending Advantage

Whether developed or developing countries, small and medium-sized enterprises (SMEs) have played an important role in promoting a country's economic growth as an important component of national economy. However, SMEs' serious and widespread problems of asymmetric information and the lack of information transparency lead to SMEs' financing difficulties, and restraint the development of SMEs in China. The practice of foreign countries shows that Relationship Lending helps to reduce the information asymmetry between banks and enterprises, and effectively overcomes the adverse selection and moral hazard problems. So it can reduce the cost of financial transactions, ease the financing constraints of SMEs effectively and provide a win-win financing mechanism between banks and SMEs. On one hand, Relationship Lending helps banks to establish new relations between banks and enterprise, to strengthen the bank's risk control, and improve their competitiveness. On the other hand, it is conducive to SMEs' stability in availability of credit, and to resolve their financing difficulties.Based on the situation of SMEs' indirect financing in China, this paper considers that we should solve the problem of SMEs financing from the information problems. On the premise of asymmetric information, we should make use of the information advantages of banks, establish effective long-term relationship between banks and SMEs, and promote Relationship Lending to solve the problem of SMEs' indirect financing. Centering round the type of information in Relationship Lending, this paper discusses the costs and benefits of Relationship Lending, and emphatically analyzes the soft budget restraints of it. This paper establishes a game model on soft budget restraints to prove the Small Bank Advantage in Relationship Lending, thus confirms the important role of the small and medium-sized banks. In light of the practice of Relationship Lending in indirect financing of SMEs, this paper puts forward corresponding policy recommendations.There are four parts after introduction in this paper. Chapter II is an analysis of SMEs financing in our country. It shows the characteristics of the SMEs financing and the existing problems in their indirect financing. And on the basis of it, this paper illustrates Relationship Lending should be raised to solve the problems. From the perspective of information asymmetry, Chapter III reveals the formation and development of Relationship Lending for SMEs, and analyses the costs and benefits of it. Furthermore, the problem of soft budget constraints is explained in detail. Chapter III discusses the Small Bank Advantage in Relationship Lending, establishes a game model on soft budget constraints to validate the Small Bank Advantage. Combining the conclusions of the former analysis, Chapter V makes policy recommendations on the implementation of the Relational Lending learning from the successful experience of foreign countries.