Lending and evaluation methods in EU-USA banking system and comparison with practice in Turkish banking sector

In the intoruction and next two chapter of dissertation after discussingthe credit risk importance and credit classification, it is mentioned aboutfundamental credit risk measurement methods and Basel -II credit riskapproaches to understand why credit risk measurement is so important forworld banking .Basel -II puts great emphasis on external ratings, including from ratingagencies, to quantify credit risks, but it also allows financial institutions touse their internal risk ratings.Even though SMEs are recognized as the most important segment ofvirtually all economies, they have not been able to receive appropriatefinancing to support their business. Therefore, it is discussed that scoringmethods could be useful to asses the credit risk and probability default ofSME. As it is summarized as below, it is discussed about credit decisionapproaches to state under which circumstances credit decision makers madetheir choice and what credit risk measurement methods mentioned at Basel- II will bring in the meaning of reform.Finally it has been prepared an example of a credit report for SME toemphasize the distinction of traditional methods and statistical methods;scoring. After that it is discussed and benchmarked the pros and cons of thisprocess to make it easy to understand distinction between traditional andstatistical methods.To summarize methods which has been implemented mostly inTurkish Banking;The traditional lending model possesses a loan underwriting andmonitoring process characterized as largely qualitative rather thanquantitative in its credit assessment. This process provides a snapshot ofoverall financial conditions of companies at the time of loan approvals.Credit scoring model, initially developed for consumer credit, is nowmaking inroad into small business lending. Credit scoring system is asystem that assigns a score that predicts the default probability of eachborrower. Financial institutions are using scoring system to determine theamount and pricing of small business loans. An effective credit scoringsystem requires the support of an established credit bureau, which captureson-going credit information of consumers and/or small businesses. Thedevelopment of a credit bureau is a lengthy process that requirescommitment of many financial institutions to share data with each other.