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Archive » July / August 2017 » Name concentration risk and credit to Smes: the case for reducing customers and raise quality

Name concentration risk and credit to Smes: the case for reducing customers and raise quality

Giacomo De Laurentis, Diego Quatraro, Luca Santambrogio
July / August 2017 - n. 7/8
Jel codes: G21, G28, L10

This study investigates the relationship between name concentration and risk on a real-world loan portfolio of Italian Smes. Consistently with findings in the field of security portfolios, our results suggest that the benefits of portfolio name diversification tend to exhaust quite rapidly as the number of obligors in the portfolio increases. Therefore, banks that are larger and larger because of the consolidation process should not worry about suffering a significant increase in name concentration risk when considering the possibility of accepting higher levels of name concentration and building closer and longer relations with a smaller base of Smes clients.

 

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