Evaluation of SME and bank financing: development of a rating model for banks from a sample of 179 SMEs in Cameroon

Abstract

The aim of this paper is to make a mathematical model, which can be used in the risk quantification of small and medium-sized enterprises (SMEs) in Cameroon. We first use logistic regression to build the model for computing the probability of default, second, we use clustering to build classes of risk. Although variables are qualitative, therefore difficult to evaluate, we obtained a model with a rate of 90% for good classification, with variables which explained 83% of failure and 96% of power of prediction. This model could be a very useful tool which would improve the capacity of banks in Cameroon.

Le but de cet article est de proposer un modèle mathématique qui puisse être utilisé dans la quantification/mesure du risque de crédit des PME au Cameroun. Premièrement, nous avons eu recours à la régression logistique pour construire un modèle de calcul de la probabilité de défaut et deuxièmement, nous avons utilisé le regroupement pour faire des classes de risque. Bien que les variables soient qualitatives, et donc difficiles à évaluer, nous avons obtenu un modèle avec une capacité de prédiction de 96%, qui enregistre un taux de bonne classification de 90% et dont les variables qui expliquent 83% de faillites des PMEs. Ce modèle pourrait être un outil très utile qui permettrait d'améliorer la capacité des banques au Cameroun.

Keywords:

• SMEs
• credit risk rating
• logistic regression
• Basel II
• bank
• failure
• effectiveness
• evaluation

Mots clés:

• PME
• notation du risque de crédit
• régression logistique
• Bâle II
• banque
• faillite
• efficacité
• évaluation

Acknowledgements

I am very grateful to the Bank X who gave me the opportunity to collect data on which this study is based, and also to their funds managers. I would like to thank Theodoret M. Fansi, Alain B. Ndzogoue and Armand Ngnecheko for fruitful comments and suggestions.

Notes

1. Loi no 2010/001 du 13 avril 2010 portant promotion des petites et moyennes entreprises aux Cameroun.

2. Institut National de Statistique. 2009. “rapport sur le recensement des entreprises.” (Institut National de la Statistique 2010).

3. Bloy, E. 2001. “proposition sur l'approche du risque et de la performance des PME par les banques”. Université de Lyon 2.

4. Institut national de la statistique. “ Recensement des entreprises.” 2010.

5. Commission Bancaire de France. 2004. “le traitement des engagements sur les PME dans Bâle II (CP3).” Bulletin de la commission bancaire 30: 19–30.

6. These pillars are minimum capital, supervisory review process and market discipline.

7. Those two variants are International Rating Based Foundation (IRBF) and International Rating Based Advanced (IRBA).

8. Basel Committee on Banking Supervision. 2004. “International Convergence of Capital Measurement and Capital Standards: A Revised Framework.”

9. Logistic regression.

10. Levratto, N. 2001. “l’évaluation des enterprises afin de faciliter l'acces au credit: quelle intermediation informationnelle ?”

11. Section 44 ‘Internal ratings, default and loss estimates must play an essential role in the credit approval, risk management, internal capital allocations, and corporate governance functions of banks using the IRB approach. Ratings systems and estimates designed and implemented exclusively for the purpose of qualifying for the IRB approach and used only to provide IRB inputs are not acceptable. It is recognized that banks will not necessarily be using exactly the same estimates for both IRB and all internal purposes. For example, pricing models are likely to use PDs and LGDs relevant to the life of the asset. Where there are such differences, a bank must document them and demonstrate their reasonableness to the supervisor’.

12. Meaning of variable in Table A1.

13. This is calculated only for variables with two modalities.

Additional information

Notes on contributors

Leonel Bomyr Kamguia Wabo

Kamguia Wabo Leonel Bomyr is an independent researcher and a graduate of the ESSEC Business School of Douala in Audit and Control Management. Interests include financial economics, management and corporate finance.