Modelling credit risk for SMES in Saudi Arabia.

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dc.contributor.advisorZhao, Huainan
dc.contributor.advisorAgarwal, Vineet
dc.contributor.authorAl Baz, Naif A.
dc.date.accessioned2022-05-18T09:26:41Z
dc.date.available2022-05-18T09:26:41Z
dc.date.issued2017-07
dc.description.abstractThe Saudi Government’s 2030 Vision directs local banks to increase and improve credit for the Small and Medium Enterprises (SMEs) of the economy (Jadwa, 2017). Banks are, however, still finding it difficult to provide credit for small businesses that meet Basel’s capital requirements. Most of the current credit-risk models only apply to large corporations with little constructed for SMEs applications (Altman and Sabato, 2007). This study fills this gap by focusing on the Saudi SMEs perspective. My empirical work constructs a bankruptcy prediction model based on logistic regressions that cover 14,727 firm-year observations for an 11-year period between 2001 and 2011. I use the first eight years data (2001-2008) to build the model and use it to predict the last three years (2009-2011) of the sample, i.e. conducting an out-of-sample test. This approach yields a highly accurate model with great prediction power, though the results are partially influenced by the external economic and geopolitical volatilities that took place during the period of 2009-2010 (the world financial crisis). To avoid making predictions in such a volatile period, I rebuild the model based on 2003-2010 data, and use it to predict the default events for 2011. The new model is highly consistent and accurate. My model suggests that, from an academic perspective, some key quantitative variables, such as gross profit margin, days inventory, revenues, days payable and age of the entity, have a significant power in predicting the default probability of an entity. I further price the risks of the SMEs by using a credit-risk pricing model similar to Bauer and Agarwal (2014), which enables us to determine the risk-return tradeoffs on Saudi’s SMEs.en_UK
dc.description.coursenameDoctor of Business Administrationen_UK
dc.identifier.urihttp://dspace.lib.cranfield.ac.uk/handle/1826/17908
dc.language.isoenen_UK
dc.rights© Cranfield University, 2015. All rights reserved. No part of this publication may be reproduced without the written permission of the copyright holder.
dc.subjectSaudi Vision 2030en_UK
dc.subjectbanksen_UK
dc.subjectSMEsen_UK
dc.subjectcredit risken_UK
dc.subjectpricing credit risken_UK
dc.titleModelling credit risk for SMES in Saudi Arabia.en_UK
dc.typeThesisen_UK

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PhD, DBA, and MSc by research theses (SoM)