Credit rationing in financial distress: Croatia SMEs' finance approach

Ana Kundid (Faculty of Economics, University of Split, Split, Croatia)
Roberto Ercegovac (Société Générale Splitska banka d.d., Split, Croatia, and Faculty of Economics, University of Split, Split, Croatia)

International Journal of Law and Management

ISSN: 1754-243X

Publication date: 8 February 2011



The purpose of this paper is threefold. The paper aims to explore and present empirical evidence of microeconomical perspective of credit rationing phenomenon with special emphasis on the small and medium‐sized enterprise (SME) sector in the Republic of Croatia. In addition, the intention of this paper is to discuss SMEs' (ir)relevance in economic recovery and growth. Thus, macroeconomical implications of credit rationing problem are indirectly underlined.


Empirical analysis of credit rationing in the corporate bank loan market was carried out on a sample from the Croatian financial market which included data on approximately 4,300 small, medium‐sized and large companies in the period from the end of 2008 to the first quarter of 2010. Multiple linear regression model was developed in order to examine enterprise's size and borrowing costs nexus as well as borrowing costs' determinants. Descriptive statistics provided certain evidence on magnitude of credit rationing and pointed out different levels of interest rates after which credit rationing and credit discouraging appears for various sizes of enterprises.


In comparison to the large enterprises, SMEs continuously encounter higher borrowing costs, upon which this discrepancy enlarges in the aftermath and presence of financial crisis. Credit spread which is used as a proxy of borrowing costs is statistically significantly determined with enterprise's size, collateral and internal credit rating of a borrower, whereas enterprise's size evidenced the highest explanatory power. Descriptive statistics showed that market cleaning of the SMEs credit applications evolves on the level of higher interest rates.

Practical implications

The paper recommends thorough reexamination of economic importance of SMEs in Croatia and calls upon more efficient support strategy and fund allocation. Precisely, government actions should stimulate more inclusive bank finance of creditworthy SMEs.

Social implications

This paper should induce and actualize better understanding of pitfalls, blunders and potentials of SMEs in fostering economic growth. More specifically, conclusions should be helpful to policy makers, national prudential authorities and students of economics.


Inclusion of borrowing costs in the analysis that presents a cut‐off point of demand and supply driven credit rationing could be a useful method for future empirical research on credit rationing.



Kundid, A. and Ercegovac, R. (2011), "Credit rationing in financial distress: Croatia SMEs' finance approach", International Journal of Law and Management, Vol. 53 No. 1, pp. 62-84.

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