Proceedings of 7th Asia-Pacific Business Research Conference 25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0 Bank Lending Operations in the SME Market – A Case Study from Singapore Keith Pond* A problem common to banks lending to SMEs that is shared by governments promoting SME finance is the operationalization and execution of the due diligence required for appropriate risk assessment. This case study is based on research undertaken in UK, Germany and Ukraine using an interview methodology. This paper extends the study to Singapore and tests a model that postulates that factors in the external, operating and internal environments of individual banks can influence lending and risk assessment decisions. The evidence from the study infers that Singapore based banks reflect local social, cultural and economic mores in a formalised relationship banking model. Banks seeking to compete in new territories should understand the local business methods if they are to be effective. Keywords: SME, Bank, Lending, Risk, Singapore JEL Codes: D82, K20, G21 and G28 1. Introduction and Background In the words of The World Bank in its 2008 report, Finance for All? Empirical evidence suggests that it is through improving access (to finance) for enterprises that financial sector development makes an important contribution to economic growth. In developed and developing economies the focus on provision of finance to SMEs is strong since such focus benefits the economy, the banks that seek asset growth and profitability and the entrepreneurs attempting to raise finance to bring their business dreams to life. SMEs represent around 90% of all firms in developed economies (Baas & Schrooten, 2006) but account for a far lower proportion of GDP and employment. It is the nature of the SME or start-up business to lack capital. Without access to equity or capital markets and often having exhausted founders‟ savings these firms obtain finance from banks. It is also in the nature of SMEs to be informationally “opaque”. The appraisal of SME accounts forms part of the credit granting process. What we must bear in mind is that governments‟ vote winning and „enterprise supporting‟ exemptions can exacerbate the information asymmetry issues that lenders encounter. For example, for small companies in the UK the annual return to Companies House can be „abbreviated‟ and does not need to be audited. Small companies are defined in Section 1.1.3. In Singapore the Accounting and Corporate Regulatory Authority (ACRA) exempts small private companies (Under S$5m turnover and under 20 shareholders) from the need to file accounts at all. Nor do the accounts, if prepared, need to be audited. ______________ *Dr Keith Pond, School of Business and Economics, Loughborough University, UK. Email: K.Pond@lboro.ac.uk The original work of Tony Stevenson is gratefully acknowledged in this study alongside the logistical and dissemination support granted by the ifs University College. 1 Proceedings of 7th Asia-Pacific Business Research Conference 25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0 In this paper we use three Singaporean bank case studies to test and extend a conceptual model of risk externalisation in bank lending to SMEs. The model was constructed using qualitative data from interview and case study research in Germany, the UK (Stevenson, 2014) and Ukraine (Pond and Stevenson, 2010). The previous studies postulate factors in the external, operating and internal environments of individual banks that can influence credit risk decisions. Whilst systems and procedures can look superficially similar the reasons for loan application procedure design can differ between national settings. 2. The Singapore environment SMEs consistently account for over 99% of all registered enterprises in the City State. Their importance is amplified by the share of employment estimated at 67% by SingStat (2014a) and the 49% share of GDP value added. Amongst territories classified by The World Bank as “Small Island Developing States” (SIDS) in its 2008 report Singapore is seen as the easiest of the SIDS for doing business. The global ranking is also 1 st, ahead of New Zealand, the USA and Hong Kong. The ranking is an amalgam of views on regulation, the rule of law, formality, women in the workplace and ease of obtaining credit, amongst other considerations (World Bank, 2008b). Singaporean banking is dominated by three large banks and by the Monetary Authority of Singapore (MAS). DBS, OCBC and UOC banks accounted for 66% of banking assets, according to Bankscope (2014). MAS accounts for a further 22%, leaving 12% shared between around 70 other banks registered. Whilst not a central focus of this research some consideration needs to be given to this oligopolistic structure and the nature of competition that emerges. SingStat (2014b) also provides evidence to populate the picture of Industrial credit activity. Building and Construction (26%); General Commerce (22%) and Financial Institutions (23%) accounted for the largest shares of loans and advances as at June 2014. Finally, in this section, it is worth noting that the non-performing loan experience of the big 3 Singaporean banks is comparable to that in many developed economies. Whilst the data amalgamate all sizes of borrower it is clear that banks in Singapore do not hesitate to extend risk. 2 Proceedings of 7th Asia-Pacific Business Research Conference 25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0 Figure 2: Loan performance data for Big 3 Singapore banks y/e 2013 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% NPL/Gross Loan % Interest Income on Loans / Average Gross Loans DBS 1.14% OCBC 0.73% UOB 1.14% 2.03% 2.89% 3.14% Source: Bankscope, 2014. 3 Research themes Baas and Schrooten (2006) identify four types of lending types in the interactions between banks and SMEs. The types are identified in Table 1. Table 1: Comparing lending types Lending type Risk orientation Relationship lending Internalisation / co-operative Financial Statement lending Externalisation / transactional SME credit score lending Externalisation / transactional Asset backed lending Externalisation / transactional Based on Douglas & Wildavsky typology, cited in Lane & Quack, 2001. According to the literature in this area the approach of any one bank will rely on a number of key factors including the institutional environment, the structure of the banking industry (size and number of banks and the level of competition) and the environmental, sociological and technological influences on lending managers. The individual approach also relies on an understanding of the fundamental issues related to borrowing and lending. Famously, William Shakespeare warned: „Never a borrower, nor a lender, be; for oft loan loseth both itself and friend. And borrowing dulls the edge of husbandry‟ (Hamlet, 1602). 3 Proceedings of 7th Asia-Pacific Business Research Conference 25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0 Shakespeare clearly knew a thing or two about banking, particularly moral hazard and reputational risk. He knew less about profitability, however. Banks that do not lend are not maximising the returns they can achieve. Moral hazard risk concerns the fact that the risk environment can change after the loan is granted. This can be through external changes, a deliberate act of the borrower or through the changed incentives pre and post loan drawdown. Moral hazard underpins the risks that a company director is willing to take. There may be an assumption of a „safety net‟ by a borrowing SME since the failure of a limited liability business might cause loss to the bank – but not to the director. Banks can use personal guarantees and personal security to support limited company borrowing in an attempt to overcome this. Adverse selection risk emanates from the information asymmetry that exists in the bilateral relationship of SME and bank. This recognises that those most willing to borrow funds are also those with the greatest credit risk. As banks increase their knowledge of borrowers over time, the risk can diminish. Stiglitz and Weiss (1981) contemplate the riskiness of propositions where borrowers are happy to accept higher interest rates or greater collateral requirements, perhaps because they hold private information about risk that is not divulged to the bank. Together these key information asymmetry related risks combine to establish credit risk or non-repayment risk. The worst case scenario is insolvency. Lenders must therefore choose those borrowers least likely to default (adverse selection). Too great a proportion of bad debts will have an impact on the bank‟s capital position and its overall ability to lend. Lenders can see benefits to themselves and their shareholders in creating and maintaining long-term relationships with customers. This has been the subject of research for some years as the logic of reducing information asymmetry in order to reduce credit risk needs to be credible in order to justify the resources applied to this activity. The alternative – of purely transaction based interactions based on hard data and credit scoring – is essentially short-term and not as sustainable as relationship banking. Relative size of a bank has a bearing on relationships (Mitter, 2012). Smaller companies value quality and consistency of relationships whilst larger companies prefer the global reach that a larger bank can offer. Relationship length can also benefit both sides. According to Hernandez-Canovas and Martınez-Solanos (2010) mutual trust, important for maintaining relationships, bloomed only with time. Berger and Udell (2006) set out some clear factors affecting relationship formation. Lending technologies are not homogenous and multiple approaches are possible to transactional or relationship types. The quality of the information environment, the trust inherent in legal remedies and the rule of law and the confidence in the bankruptcy system all play a part in the willingness of banks to lend. This is supported by Thampy (2010) in the context of India. Figure 2 attempts to plot the various lending technologies noted in Berger and Udell (2006) against the axes of time and informational transparency. The focus on specific security / collateral is clear in the early stages of a relationship or where detailed SME information is difficult to find (especially with start-ups or micro enterprises). 4 Proceedings of 7th Asia-Pacific Business Research Conference 25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0 Figure 2: Lending technologies and the banking relationship In the early days and years of a banking relationship the focus on collateral acts as a barrier to entry to other lenders, allowing sole access to banking information and SME data for the incumbent lender. This can protect banks in the short-term as, according to Berger et. al. (2002), the response of SMEs to distress in the banking sector is to multi-bank. A number of papers have focused on bank ownership and the ability of foreign owned banks to gain market share since their culture may be different to the host country. Clarke et. al. (2005) found that bank ownership was not a barrier to market entry and penetration in four Latin American countries. The author‟s own observations in Ukraine bear this out as ownership of nearly all banks operating in Ukraine is foreign. Even when relationships are formed, however, and the accumulation of „soft‟ information protects the position of the lender further there is a need to capture the information for the bank as it often resides in the loan officers and this is lost as promotions and churn of staff follow expansion and contraction of banks and credit availability in an economy (Berger and Udell, 2002). Berger and Udell, in 1995, found evidence in US banking relationships of longer-term effects of lower interest rates and lower collateral requirements. This is in line with the above theory that the credit risks are decreased as „soft‟ information accumulates. In 2000, however, Degryse and Cayseele refined this view from research in Belgium. They saw the lower interest rate for long term relationships not being related to the length of the relationship but to the purchase of other information sensitive products from the bank. Their research did bear out the reduction in collateral requirements as relationships matured. Access to finance depends heavily on the institutional environment in the individual country. In the most developed environments, UK and US, for example, an increasing trend towards transactional lending is supported by the development of good credit registries (World Bank, 2008a). However, reliable SME information is rare and costly, 5 Proceedings of 7th Asia-Pacific Business Research Conference 25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0 factors that would lead many lenders to select a relationship approach, rather than a transaction based one, gaining competitive advantage over the longer-term (Baas and Schrooten, 2006). Relationships can help lenders to acquire “soft” information that is, typically, not amenable to credit registry collection and display. In the period following the recent banking crisis the situation is similar for SMEs. A report by Tim Breedon (2012) was cited by the UK government as an important step in regulatory change to make access to SME credit information and, thus, to finance options (HM Treasury, 2014). 4. Comparing UK and Germany The UK banking market is dominated by a small number of large banks (Cruickshank, 2000). This would normally translate into a transaction based approach to lending since the set-up and monitoring costs are lower (Deschenes, 2008) and a focus on Financial Statement (“gone concern”) lending (Berry et al., 2004). The UK banks display a fairly quantitative approach to risk assessment and although “soft” information is acquired in the loan application process this is considered to be subjective and unreliable (Lane and Quack, 2001). The oligopolistic competitive structure and the lack of longer-term “soft” data would also suggest a greater reliance on collateral (Voordeckers and Steijvers, 2006) and an externalisation of risk. In their paper based on a study of Belgian bank records Voordeckers and Steijvers also suggest that taking collateral also forms a useful barrier to entry to other lenders. Paradoxically, however, UK based SMEs have one of the lowest average number of banking relationships in Europe – each having facilities with 1-2 banks. This suggests that whilst UK banks do not consider their interactions with SMEs as a “relationship”, the SMEs do. Individual SMEs typically get all of their banking services (credit, transaction processing etc.) from one bank (Berry, 2006). In mainland Europe the number of relationships is greater as different services are sourced from different providers. Berry (2006), considers that the structure of the banking industry is a strong determinant of the propensity for SMEs to “shop around”. In Germany the “Hausbank” relationship banking paradigm (Lane and Quack, 2001; Behr and Guttler, 2007) is well described in the literature. This traditional approach, with its emphasis on longer-term relationships with SMEs is seen as beneficial since it reduces both information asymmetry over time and any hold-up problems. The “Hausbank” paradigm creates a co-operative atmosphere between bank and SME. The German banking market is much more fragmented than in the UK. Whilst large banks exist they do not dominate the SME market. Regional and local banks, often acting co-operatively, combine local knowledge and good access to funding. SMEs have little incentive to switch banks since switching and search costs increase when a new relationship has to be forged. Lane and Quack (2001) also describe German banks as hierarchical and bureaucratic. Individual managers are given a relatively low level of discretion for loan decisions and, although the German approach is more qualitative and subjective than that of UK banks, it is supported by a highly standardised procedure for evaluating risk. In addition, the focus on “soft” data should mean a lower reliance on collateral. 6 Proceedings of 7th Asia-Pacific Business Research Conference 25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0 Mercieca, Schaeck, and Wolfe (2009) considered concentrated banking markets in Eurpoe and concluded that these have negative impacts on competition for SME business but also spawn specialist competitors concentrating on asset finance or leasing rather than with loans and advances from traditional banks. The UK and German systems have been dichotomised in this narrative in order to categorise features sensibly and, later, to compare these with Ukrainian and Singaporean experience (see Table 2). In reality banks in UK and Germany show similarities too and, as markets open up within Europe, features of “relationship” banking can be seen in the UK and “transactional” banking in Germany (Lane and Quack, 2001). Table 2: Comparing key features of UK, German and Ukrainian SME lending UK* Germany* Ukraine Number of Few Many Many banks Size of banks Large Medium - Small Medium - Small Institutional Market led Hierarchical / Hierarchical / type bureaucratic bureaucratic Lending type Transaction Relationship Transaction oriented Loan term Short-term Longer-term Short - term Managerial High Low Low discretion Collateral Any available Business assets Any available Risk handling Externalisation Internalisation Internalisation Risk sharing Little evidence Collective No evidence * based on Lane & Quack, 2001; ** based on Pond and Stevenson, 2012 5. Data collection The Singaporean empirical data for this paper was collected during three interviews with lending bankers in Singapore. Whilst this is not put forward as a representative sample of all Singaporean banks it provides three case studies from which broad generalisations can be drawn. The similarities found between the three banks also suggest that the processes and procedures used in other banks are comparable since they result from a similar appreciation of the environment within which lending decisions are made. The sample banks were all large banking institutions. The banks, themselves selected the interviewee. One interviewee performed a Head Office function and so was able to describe the Head Office and branch procedures well. Two interviewees were retail branch staff who had day-to-day dealings with loan applicants. All interviews were conducted using a question template designed to elicit a description of the loan sanctioning process. The questions were identical to those used in a research project in the UK and Germany (Stevenson, 2014), allowing some broad comparisons to be made with these markets too. The questions followed broad themes (echoed in Lane and Quack, 2001) covering: Loan allocation and specification – the types, terms, costs and variety of products available; 7 Proceedings of 7th Asia-Pacific Business Research Conference 25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0 The loan process within the bank – systems and procedures, hierarchies and policies; The level of managerial discretion – the level of input from relationship managers; The selection of borrowers – information needs and availability; Rewards and incentives for managers – linked to systems and managerial discretion; Wider loan allocation considerations - environmental and regulatory issues; and Underlying bank values – credit culture, ethical views. The design of questions was such that environmental, operational and resource based issues would all be highlighted as the loan application process was described. The conceptual model arising from the literature in this area suggests a layered “onion skin” paradigm, based on the work of Bronfenbrenner (1979). The “onion skin” concept is illustrated in Figure 3. Figure: 3 A conceptual model of environmental influence The model suggests that decisions, processes and “cultural norms” within an organisation are influenced by the strategic resources of that organisation, the competitive environment within which it operates and the political / economic / regulatory regime within which it exists. In the context of lending to SMEs the focus of the model is risk. Risk emanates from all areas of the environment – external and internal and loan assessment procedures are designed to identify, assess and manage risk. The process followed was to send copies of the interview questions to participants in advance. The interviews were conducted in English. All interviewees were open and cooperative and in all cases the interview extended beyond the 40 minutes to 1 hour time originally allocated. None of the banks gave permission for their name to be associated with the research. Analysis of the interview transcripts was undertaken using a three-stage coding process that sifted the raw transcripts for themes, collated the themes into a smaller number of key 8 Proceedings of 7th Asia-Pacific Business Research Conference 25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0 areas and, finally, linked these areas with the overall conceptual model or risk. It is important to note that whilst the interviews were structured using common questions it is the responses given that were analysed. The strength of any qualitative research methodology is that the conclusions are reliable and robust and that the interpretation of the empirical data is able to be replicated. 6. Analysis of findings from Singapore 6.1 General Environment Governmental support and “keeping the government happy” were key drivers from the external environment. Loan support, in the form of state guarantees, is a common form of intervention. Whilst risk sharing and higher interest rates for government guaranteed loans were also offered as reasons for adoption there was clear consensus on the point that commercial judgement on loans outweighed government incentives. Enterprise size has a significant bearing on the amount of scrutiny, relationship attention and exposure provided by a bank. Understandably the larger clients have the potential to be more complex and more profitable and so more attention is given here. Micro enterprises often have to work within a strict credit exposure limit or will only be offered asset finance, to reduce overall risk. This is seen by respondents to be a product of the competitive environment as many SMEs will be multi-banked and many smaller competing banks will be happy to steal business from the larger institutions. The geography of Singapore is a clear driver for the centralisation of SME business activity in banks. Although banks have branch offices throughout Singapore the territory is so small that relationship requirements can be effectively managed from a central location in most cases. 6.2 Loan Specification and Loan Allocation (methods) Banks in Singapore generally offer only standard products to SME clients with the level of flexibility and tailoring of facilities higher for larger clients. Packaged lending relates to conditional purchase / loan or invoice discounting (accounts receivable purchase) products. An interesting issue for banks is that the Chinese community in Singapore saw “factoring” as a sign of weakness and cash-flow problems and so would shun a trader factoring their debts. In Germany and the UK this would be seen as a normal business transaction and, perhaps, a sign of prudent cash management when used in the right circumstances. Loan terms are seen by lending managers as not negotiable – not in respect of the clients but in respect of what their KPIs, targets and policy guidelines dictate. Loan durations will vary with the state of the general economy (shorter loans in more uncertain times) but margins have to be maintained. The individuality of the lending / relationship manager is stifled through fairly rigid adherence to minimum risk standards and margins. Once again, flexibility, loan terms, margins, specific covenants etc. can all be relaxed where the size and importance of the client to the bank is higher. Emerging markets, where banks seek to gain market share can also have flexibility in loan terms. In addition, the banks recognise that the market for SME finance in Singapore is highly competitive and margins for winning good quality deals will be very thin. 9 Proceedings of 7th Asia-Pacific Business Research Conference 25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0 Enterprise size is, once again, a key factor in determining the level and quality of relationship with the bank. The smaller enterprises are dealt with on a “tick box” basis whilst mid-market and larger enterprises have dedicated relationship managers. Due diligence is no different than in many other developed countries with full use being made of financial information. However, lending managers are wary of the quality of audit practices and will have discretion in determining the credibility of financial information. The respondent banks all allowed lending managers considerable responsibility in judging the credibility of financial projections, in particular. Expertise and networks are built up by lending managers through the division of many banks‟ activities by industry type. By creating deeper awareness of a particular industry the managers know the networks, the customers and suppliers of a client and can use this “soft” information to inform the judgement on credibility of audited and other management data. 6.3 Processes and discretion Training of staff was highlighted by respondents as an important tool in dissemination of credit standards, credit policy and knowledge of systems. Relationship managers / lending managers were mostly graduates, selected for their transferable skills rather than their subject knowledge and given clear training and close supervision from the start. Most of the most valuable training, according to respondents, was conducted “on the job” as supervisors allowed lending managers greater flexibility and variety in managing their portfolio of clients. Managers are clearly incentivised by KPIs but the culture of cash bonuses (largely for volume of business rather than profitability) in not uniform. One bank, in particular, offered a good basic salary without bonuses and felt that staff members were incentivised by achieving their targets rather than by direct reward. The issue of personal involvement and influence on lending decisions is one that has had much scrutiny by researchers as summarised by Trönnberg and Hemlin (2012). In terms of risk mitigation the human element in the decision making process is probably the most flawed as natural risk aversion is coupled with overstating small probabilities. What the Singapore bankers displayed was a form of “bounded influence”. In cases of smaller businesses and emerging markets, where policy was vague and corporate experience patchy managers were given more discretion to sign up new business. This was also the case with negative information – a manager‟s “bad feeling” would be enough for the bank to decline a loan. For good propositions, where data and history were available, the businesses were well known, and the bank had a clear policy, managers felt that they had less of an input and they merely processed information so that a standardised decision could be made. 6.4 Borrower selection There is evidence in the responses that lending managers‟ discretion in rejecting individual cases is an important early filtering mechanism. Whilst positive recommendations from managers have to be agreed by credit committees or by credit departments, negative recommendations are accepted with little additional formality. 10 Proceedings of 7th Asia-Pacific Business Research Conference 25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0 In the absence of audited and published financial data in many cases records for prior bankruptcy or “watch list” clients and negative court judgments (litigation) that are in the public domain increase in importance and support early loan request rejections. There is some suggestion that the level of risk aversion is re-enforced by direct impacts on lending manager KPIs. The negative impact of non-performing loans was seen as a shared responsibility. This reflects the shared nature of the original loan sanctioning decision. 6.5 Reasons for allocation and Underlying values As with poor quality credit risks the banks also maintain a list of industry areas and enterprise types where facilities will almost invariably be declined. These types of enterprises are generally charities and religious organisations. It was suggested by respondents that not only did these organisations have access to more suitable funding sources but that they also represented potential areas of social conflict and bank reputation would be damaged. Reputational damage was also the reason given for avoiding “unethical” investments such as vice and arms. Alcohol production was not mentioned as a “no-go” area as it had been in the parallel research in Ukraine. (Pond and Stevenson, 2010) Bank policy and practice was a key driver in decision making for all respondents. Policy driven by portfolio considerations would see the capping of loans to, say, the property sector in times of greater uncertainty or property price issues. One bank outlined its annual review of growth sectors and targets for lending. Lending managers felt empowered by this process as client level intelligence would be fed up to credit committees and then to risk analysts so that the decisions on targets for specific sectors would take all views into consideration. Practice centred almost entirely on credit assessment and credit quality – the vital importance of cash-flow and repayment beyond considerations of collateral. 6.6 Overview One of the most striking features of the interview responses was the scope and control exercised by institutions and the deference to institutional values and policies displayed by lending managers. This pattern of response is highlighted in Table 3 where ex ante coded questions are compared with their post hoc coded responses. Table 3: Q&A correspondence Percentage of categorised responses for each category of question Q/A Environmenta Operationa Institutional Business l l Environmental Operational Institutional Business Personal 35.19% 0.00% 4.76% 0.00% 0.00% 0.00% 44.19% 0.00% 0.00% 3.45% 12.96% 44.19% 95.24% 19.05% 34.48% 48.15% 11.63% 0.00% 76.19% 17.24% Personal 3.70% 0.00% 0.00% 4.76% 44.83% 11 Proceedings of 7th Asia-Pacific Business Research Conference 25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0 On the whole questions about a specific driver elicited an answer reflecting that driver. For example, questions about regulation revealed knowledge of, but little use of, government backed loan guarantees. However, almost as many responses perceived an institutional driver where a question was about personal influence or managerial discretion. Respondents perceived Market based / Operational issues through the lens of the Institution as much as they did the market. In addition, environmental drivers / factors were perceived through the lens of the business reaction to change. Table 4 summarises the key findings against the earlier reported data on UK and Germany. Table 4: Comparing key features of UK, German and Singaporean SME lending UK Germany Singapore Number of Few Many Few banks Size of banks Large Medium - Small Large Institutional Market led Hierarchical / Market led type bureaucratic Lending type Transaction Relationship Relationship Loan term Short-term Longer-term Longer-term Managerial High Low Low discretion Collateral Any available Business assets Any available Risk handling Externalisation Internalisation Mixed Risk sharing Little evidence Collective Collective 7. Conclusions This small study has delivered some interesting findings, not only relating to the excellent level of co-operation of Singaporean banks in the research but also to the risk environment within which they operate. The conceptual model devised for German and UK banks proves to be an excellent template through which Singaporean experience can be compared. The key differences between the UK, German and Singaporean evidence are, therefore in the external environment, the nature and maturity of credit registry systems and accounting and reporting procedures. Like the UK the Singapore market portrays an oligopolistic structure and yet, the lending behaviour and market focus is similar to that in Germany. As in Germany the overall conclusion is that Singaporean banks are closer to and value relationships with SMEs. Success and failure are shared risks. In Singapore the geography and size of the City State can be cited as a factor affecting the findings. The market environment includes a large number of interconnected businesses sharing locations, family ties and knowledge of one of a small number of banks. Ownership of banks does not have a material impact on the conduct of business although it should be noted that the one bank not offering financial incentives to lending managers was formerly government owned and may, therefore, have a public service legacy. 12 Proceedings of 7th Asia-Pacific Business Research Conference 25 - 26 August 2014, Bayview Hotel, Singapore ISBN: 978-1-922069-58-0 By adding Singapore to the case studies from the three other locations we begin to build a sense of market knowledge that is required before entering new regions. Whilst banks seek growth areas to deploy their capital profitably and efficiently perils await those that do not understand the way in which business is undertaken locally. As with any individual research project there are limitations with this research, largely due to the small sample size and the original focus of the conceptual model. 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