Relationship Banking and Profitability - An Empirical Survey of German Banks

Abstract:     
The financing of German small and medium-sized enterprises (SME) is still strongly dominated by housebanks (Elsas (2005)). Based on a survey of 129 German banks we examine how the housebank relationship is reflected in the credit processes of these banks. We also pursue the hypothesis that those banks are more successful whose processes are more strongly organized according to relationship banking aspects. We found a positive correlation between the use of qualitative information (measured with two indicators) and the return on equity (ROE), which supports our hypothesis. Finally we identified three groups of banks: One group which credit processes are primarily designed under relationship banking aspects, a second group which process-design is rather arranged under transaction banking aspects and a third group with no clear focus.

Number of Pages in PDF File: 25

Keywords: Banking, credit process, bank performance, relationship lending, housebank

JEL Classification: G21

working papers series