The Role of the Banking System on the Financing of Businesses and the Determinants of the Lending Level on SMEs in Kosova

Abstract

The bank-business relations are the basis of the business volume between them. It is the banking system which makes it possible to support the whole cycle of the business financial operations. The bank credits for investment, technology, purchase of raw materials and other opportunities. Banks do also make it possible to do the payments for different services that are already a legal liability for businesses. From a recent confrontation between the business, banks and other financial intermediaries in the banking sector in Kosova, several problems were detected such as: banks retain a high level of interest in business loans, which creates a not very friendly environment between them; banks have very high service payments which are almost unaffordable for small businesses but they are obliged to go through them; according to different statistical reports carried, banks have reached high profit rates compared to the difficulties of small businesses to survive in the current global crisis. Therefore, the creation of systems of guaranteed funds and soft loans must be part of the constant lending policy of the bank-business relation. The banking system in Kosovo has deeply obtained the confidence of individuals and businesses considering its developing from scratch. Based on the existing national and international studies the banking system in the region and wider is considered as consistent in front of the current global crisis. Nevertheless, although sustainable and powerful, the banking system in Kosova remains among the main barriers in the business environment in Kosovo. The SMEs in Kosova are playing an important role on the economical development of Kosova. They are considered as the main source of job vacancies and the rapid generation during the recent years. This scientific research aims to identify and analyze the activity of the banking system in Kosovo, which continues to expand, while maintaining a satisfactory level of sustainability in all its constituent segments. Case studies rely on quantitative data derived from reports of financial stability and where the main focus of this paper is to explain the role of Kosovo's banking system in the financing of SMEs through the economic analysis using econometric models tested in the Stata program. The empirical analysis will be accomplished by applying linear regression method. At the end of the study it is concluded that the ease credit offer is generally attributed to the ease of lending standards for small and medium enterprises (SMEs), for long-term loans and short term loans.