The effect of banks' credit risk management on small and medium-sized enterprises: An examination on Kosovo

This thesis aims to provide a comprehensive analysis of the impact of banks' credit risk management (CRM) practices on the financial sustainability and growth of Small and Medium-sized Enterprises (SMEs) operating in Kosovo. Considering the central role of SMEs in Kosovo's developing economy and the relative novelty of the banking sector, this research is of particular importance. The primary goal is to investigate how banks' CRM policies affect the accessibility of credit for SMEs and how this situation affects their operational efficiency and expansion potential. The research adopts the analysis of qualitative data obtained from survey responses prepared for SME officials. The sample includes data covering various economic cycles from 2012 to 2023. Qualitative insights complement statistical findings and present a more nuanced understanding of CRM's impact on SME credit accessibility. Findings indicate that stringent CRM practices, while reducing banks' credit risk, may inadvertently hinder SME growth by limiting access to finance. Specifically, high collateral requirements and conservative loan-to-value ratios have been identified as significant barriers. Furthermore, the study found that during economic downturns, despite SMEs' significant contributions to employment and GDP, banks in Kosovo tightened credit disproportionately to SMEs compared to larger enterprises. The regulatory crackdown following the global financial crisis, which was based on precautionary action, led banks to adopt an overly cautious stance, which has been detrimental to SME financing. Hypotheses were tested to determine whether the characteristic characteristics (gender, age, civilization, education level, income level) of KOBI managers in Kosovo, who responded to the first five questionnaires, had the highest score for credit risk management in Kosovo's banks in ranking the impact on access to credit financing for small and medium-sized enterprises in Kosovo.