Study Of Commercial Banks’ SME Credit Business Based On The Game Theory

Small and medium enterprises(SME) are more important in China’s economic development in recent years; the current survival situation of them has got a lot of attention. SME are facing huge opportunities and challenges because of the changing international economic environment and the demand of China’s economic transformation. The government has taken a series of measures to promote the development of SME, including finances, taxation, and legislation. However, the difficult problem of financing still exists which is hindering the development of SME.Compared with large enterprises, SME have less financing channels. SME depend on commercial banks mostly in financing, while the banks are always dealing with the demand of SME with caution. The paper selected the perspective of commercial banks to discuss the financing problem of SME; such is also based on the importance of commercial banks. Existing study of SME credit financing involved in commercial banks’ function is less, and the discusses that taken the SME credit financing as a interaction process of the banks and enterprises mostly focused in theoretical analysis. This paper will do the quantitative experiments with the method of simulation, trying to find the key factor that puzzling the commercial banks when facing the demand of SME financing.Through the analysis of SME development in China, and also the successful experiences of foreign countries in SME credit business, the author believes that the too-high transaction costs and excessive loss risks are the main reason that the commercial banks have less willing to provide a loan to SME. Then, the author builds a model of the credit process between banks and SME based on the Game Theory. The model is static in complete information, and the author then takes two key variables into this model separately. The model with variable Transaction Costs is named Transaction Costs Model. and the model with variable Guaranteed Return is named Guaranteed Return Model. The author simulates these two models in MatLab, and gets a series of meaningful conclusions:(1) Commercial banks will ask a lower loan mortgage rate with the decrease of their transaction costs, which means that SME can get the loan more easily and so does the positive interaction between banks and enterprises.(2) Commercial banks will ask a lower loan mortgage rate and a lower recovery rate of mortgage if the guaranteed return for banks when the enterprises break the contract increases, which means the banks and SME can form the cooperation more easily, and this outcome is beneficial to the development of commercial banks’SME credit business. Based on the conclusions above, the author gives several recommendations about how to promote development of our commercial banks’ SME credit business.