It is widely recognised that SMEs play a vital role in the generation of a dynamic economy and in particular in the creation of new employment in the EU as well as in the other MAP countries. However, SMEs are often seen as under capitalised when banks apply generally accepted international standards for financial assessment and face significant problems in raising debt finance and in obtaining risk capital, or subordinated debt.
Since the Basel II Accord seeks to align banks’ capital allocation with the risk characteristics of a bank’s lending there has been concern in the SME sector that the new regulations will increase the cost of borrowing or impose even more difficult hurdle criteria and in some markets perhaps provoke a further reduction in credit facilities made available to the SME sector.
