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Small Business Banking and the Crisis

Managing development and risk

The global financial and economic crisis—with the increasing cost of risk, the drop in demand, and the rising pressure on banks to support the economy—has highlighted the major challenge that small business bankers face: how can they both accelerate business development and manage risk?

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Small businesses play a major role in the world economy. In Europe, Japan, and the USA, 99% of the enterprises belong to the small business market and are responsible for 51% of the employment in the private and non-financial economy (see Methodology for how we define the small business market). Small business employment is more than 50% in the EU27 and approximately 40% in the USA.

This is a high-growth market. In Europe between 2002 and 2007, the number of small and medium enterprises grew by 11%, and their number of employees went up by 9% (versus 4% and 3% for the larger enterprises). The line-of-business diversification of small businesses helps mitigate the impacts of macroeconomic downturns at the national or global level. That is why, when added to the fact that small businesses employ such a large portion of a nation’s people, governments often rely on small businesses to boost economic recovery in times of crisis.

According to our interviews, while representing less than 10% of the retail banking client portfolio, the small business market accounts for almost a third of retail banks’ net banking income (NBI).