Antecedents of SME loan defaults: an exploration of business failure factors as measures of credit default risk, and the development of an analysis framework
Hasan, Md Kayser (2025)
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe20251205114815
https://urn.fi/URN:NBN:fi-fe20251205114815
Tiivistelmä
SME - Small and Medium-sized Enterprises are essential for global economic prosperity, yet their high rate of loan default poses a critical challenge to financial sector stability. This Master’s thesis investigates the underlying anteced-ents of SME loan defaults by exploring specific business failure factors that extend beyond traditional quantitative credit metrics. The primary objective is to identify these qualitative factors and develop a practical, comprehensive analysis framework for financial institutions to enhance risk recognition and post-disbursement monitoring.
The research used a qualitative approach, drawing on expert insights from SME practitioners within the banking sector to pinpoint critical pre-default indicators, major challenges in loan recovery, and viable mitigation strategies. Key findings reveal that loan defaults are often preceded by a recognizable conflu-ence of managerial deficiencies (for example: diversion of funds, loss of key personnel) and vulnerabilities which manifest as early warning signs. The study also highlights significant recovery impediments, including inadequate collateral and cumbersome legal processes.
The central contribution of this thesis is the Analysis Framework, a structured tool designed to integrate qualitative business failure analysis with existing credit risk practices. This framework provides financial institutions with a more robust and proactive approach for identifying non-performing loans early, thereby mitigating credit losses and promoting sustainable SME financing.
The research used a qualitative approach, drawing on expert insights from SME practitioners within the banking sector to pinpoint critical pre-default indicators, major challenges in loan recovery, and viable mitigation strategies. Key findings reveal that loan defaults are often preceded by a recognizable conflu-ence of managerial deficiencies (for example: diversion of funds, loss of key personnel) and vulnerabilities which manifest as early warning signs. The study also highlights significant recovery impediments, including inadequate collateral and cumbersome legal processes.
The central contribution of this thesis is the Analysis Framework, a structured tool designed to integrate qualitative business failure analysis with existing credit risk practices. This framework provides financial institutions with a more robust and proactive approach for identifying non-performing loans early, thereby mitigating credit losses and promoting sustainable SME financing.