South Tyrol's companies - Fit for the future Preparation for Basel 2
This study analyzes the effects of Basel 2 on the banking industry and companies in South Tyrol: What are the expectations of banks and companies regarding Basel 2? How well are they prepared for it? What challenges still need to be overcome?
In addition to a detailed secondary analysis of Basel 2 (legal provisions and general implications), the IER - Institute for Economic Research of the Chamber of Commerce of Bolzano interviewed the representatives of the three most important local banks and conducted a postal survey of 470 South Tyrolean companies. Basel 2 is primarily a supervisory instrument for banks in order to increase the creditworthiness and stability of the financial sector. This is to be achieved through three measures (pillars): −
The local banks are very well prepared for Basel 2 as they: − − −
already have a high level of equity backing; have only a small proportion of defaulting loans; have a competitive advantage over foreign credit institutions due to their solid knowledge of the local market and high counter density.
The situation is much more problematic for South Tyrolean companies. The information level of the South Tyrolean entrepreneurs is insufficient: half (52.3%) of the companies feel almost uninformed about Basel 2, 42.5% quite well and only 5.2% very well. But the level of information grows with the size of the companies.
Pillar 1: Adequate capital deposit of the granted bank loans; Pillar 2: stricter controls by banking supervisors; Pillar 3: increased transparency on the part of banks.
Most South Tyrolean entrepreneurs clearly underestimate Basel 2: 72.5% do not expect any effects on their business. Negative effects are feared only in the form of a tightening of credit restrictions.
Within the framework of all three pillars, Basel 2 requires banks to use comprehensive risk management (especially credit risk), with corresponding consequences for borrowers: In the future, the creditworthiness of each individual customer will be checked even more intensively than before.
The South Tyrolean companies use numerous business management instruments, which are important for the credit check, only to a limited extent. Relatively few (and mostly large) companies, for example, have meaningful interim balance statements or multi-year financial planning.
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Conclusions −
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Despite good conditions, Basel 2 also requires banks to better record their risk management and become more transparent. The dialogue between banks and companies needs to move more in the direction of openness and information exchange. The level of information on Basel 2 among South Tyrolean entrepreneurs (especially the smaller ones) must be increased significantly through targeted educational work. Banks, business consultants, associations and the Chamber of Commerce must sensitize companies to the fact that the creditworthiness of their business will have a greater impact on credit checks than before. Independent of whether a credit check is due or not, Basel 2 should be seen as an occasion for companies to constantly review their business situation (financial situation, internal organisation, competitive environment, etc.) and to increasingly use business management instruments (such as multi-year financial planning, controlling, etc.).