Abstract:
The need to create sustainable ways of generating profits has put substantial pressure on banks
to reinvent their business models in the post-‐‑global financial crisis era. The objectives of bank
managers, which include profit maximization, essentially influence the bank’s lending behavior,
scale, choice, and timing. Among the constraints that small and medium businesses face is
limited access to financing. An increase in bank involvement in the financing of small and
medium enterprises is critical for the survival of the sector. Given the widespread heterogeneity
in banks business models globally, this study, grounded on the Portfolio Management Theory,
investigates how diversity in business models affects bank risk management systems and their
proclivity to small and medium enterprises lending. Structural equation modeling, a
confirmatory, multivariate technique, was employed to analyze the causal relationships
between these variables, starting with a pictorial representation of the variables. The strong
relationship between the variables under study suggests that business models and risk
management systems are key components in the decision to lend to small and medium
enterprises. As such there is need for banks to reconsider their business operations mechanisms
in order to accommodate the small and medium enterprises sector.
