Basel II and Changing Bank-Firm Relationship: A Survey

Abstract

This chapter analyzes the results of a business survey on the changes in the bank-firm relationship in view of Basel II carried out in 2006. A non-negligible share of firms was aware of the possible effects of the new regulation and some of them were implementing relevant organizational changes. In general firms did not perceive any relevant change in banks’ behavior, but there was some dispersion in the answers on credit availability and conditions. A trend towards reduction in multiple bank relationships emerged, particularly among firms participating in the national survey. The local survey aimed also at evaluating the impact of bank-firm relationship on growth plans of Italian SMEs. Firms located in Emilia-Romagna showed a higher growth propensity. Among the main obstacles to growth, firms emphasize bank financial and consulting support, and managerial and organizational problems.

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1 Introduction

At the beginning of 2007 the new rules on banks’ capital requirement (Basel II) have come into effect. The main purpose of the new regulation is to reconcile capital requirements on credit portfolios to banks’ own assessment of risk and therefore to adjust capital rules to management practices of the operators.

It is difficult to establish a priori the impact of Basel II on bank-firm relationships. The sound practices expected as a result of the introduction of the new rules are, on the one hand, a spur to banks to use more sophisticated instruments for the effective knowledge of businesses as well as to improve the evaluation of investment projects; on the other hand, Basel II should provide an incentive for firms to make a more thorough disclosure of their own financial condition and growth prospects. Greater knowledge of firms by banks may imply a better credit pricing and an increasing differentiation in credit availability for firms. Moreover, there could be an incentive for more exclusive and long-lasting bank-firm relationships, thus reducing the scope for multiple lending relationships, a phenomenon widespread in Italy and linked to the presence of switching costs (Detragiache et al., 2000).

The new regulation hinges on a better exploitation of information. The theory of financial intermediation shows that banks have a specific advantage in the acquisition of private information during their credit relationship (Gordon and Winton, 2003). The specialization of banks in the evaluation, selection and monitoring of investment projects is central to explain their function in innovation and growth projects. King and Levine (1993), for example, emphasize the role of intermediaries in reducing the costs of identifying the entrepreneurs more capable of generating innovation. Herrera and Minetti (2007) find that the length of the lending relationship, a proxy for the intensity of the relationship with the main bank, has a positive effect on the probability that firms invest in process innovation. The literature on relationship lending does not give a clear-cut answer on the effect of exclusive and long-lasting bank-firm relationships on the availability and cost of credit. Some authors find a trade-off in lending relations: on the one hand the solution to information asymmetries can increase credit supply by the main bank to the more opaque clients (protection effect), on the other hand the holding up effect of exclusive relations can increase credit costs (Boot, 2003).

The final impact of Basel II should not be taken for granted, but will depend on the balance of the expected benefits and the costs envisaged by the agents. The possible final market equilibrium is not unique and it could be a sub-optimal one. For example, if banks limited themselves to a bureaucratic use of automatic procedures, based mainly on data from firms’ balance sheets, without exploiting adequately the qualitative information deriving from the relationship with firms, or if they based the lending decision only on the presence of suitable collateral, then there could be credit rationing and/or higher credit costs (Calcagnini, 2004). Moreover, if firms perceived the introduction of the new rules as a burden in terms of higher information costs or more difficult credit access, then they could increase the number of banking relationships in order to keep some flexibility and bargaining power with respect to the banks. Finally, it is not clear whether the instruments given by the regulator could be adequate to favor the correct evaluation of start-ups, the youngest firms without a business history, which are more difficult to distinguish from the inefficient firms.

In other terms, it is the “interpretation” of the new rules by economic agents that will determine whether they will be effective in improving the relationship among banks and borrowers. Such “interpretation” has more relevance in periods of economic crisis, when credit supply can be constrained by the availability of bank capital. In this situation, the extent to which banks can extend credit depends on their ability to evaluate and select investment projects based on an effective use of soft information (information on the quality of management, for example) or difficult-to-process information (such as forecasts for the sector of economic activity in which the firm is operating). If banks adopt an automated processing of the lending relationship, and firms maintain an excessive degree of opacity, credit becomes a commodity, that risks to evaporate rapidly when external conditions are not favorable. In sum, a valuable lending relationship can be maintained also in period of economic crises if both banks and firms invest in increasing the quality of the information exchanged.

In order to verify if and how the relationship between banks and firms were evolving in view of the introduction of the new rules on bank capital adequacy, in 2006 the Bank of Italy carried out a survey, adding a special section on Basel II to the yearly survey on a sample of private non-agricultural firms with 20 and more employees.¹ The survey focused on three aspects:

• 1. The actual degree of knowledge of the new regulation by firms, their awareness of the repercussions for their activity and the initiatives taken to adapt to these changes. In particular, the survey verified whether the firms had carried out some organizational changes in order to provide banks with additional and more detailed information on their activity and on their economic results;

• 2. The changes in banks’ behavior perceived by firms as specifically related to Basel II, in order to verify whether the new rules could determine some sort of credit rationing;

• 3. The changes in the firms’ financial structure and in lending relationship. More specifically, the survey aimed at checking whether the greater transparency required by Basel II could induce firms to reduce multiple lending and to concentrate credit on their main bank.

The impact of Basel II may be different depending on firm size. In this context, the effect of new rules on the relationship between banks and small firms could vary depending on their geographic location, the characteristics of the bank, and how widespread becomes among intermediaries the use of the more sophisticated methods stimulated by the new regulation.

The Italian productive structure is dominated, more than in other European countries, by small firms. In 2003 95% of Italian firms and 47% of total industrial employment was concentrated in firms with less than 20 employees. The average firm dimension was about 4 employees, against 7 in France and about 12 in Ger-many and in the United Kingdom (Istat, 2006). In 2005 bank loans to small firms (with less than 20 employees) represented less than a fifth of the total. In this segment small local banks showed a high degree of specialization, with a market share of 27%, about twice the share they had in total firm credit market.

Since the impact of Basel II may differ according to firm size, the national survey was supplemented by a local survey on small and very small firms localized in Emilia-Romagna (Northern Italy), Puglia and Basilicata (Southern Italy). The local survey was carried out with the help of the local Associations of small and medium firms (API). In addition to these topics, the local survey on small firms dealt with bank-firm relationship when the firm decides to expand its scale of operation: the type of financing involved, the non-financial support by the main bank, the obstacles met by firms that decided to drop the growth project.

The new regulation is likely to have an impact on the firms’ funding choices regarding their investment plans and more generally on the link between “finance” and “growth and development” of the economy (Calcagnini, 2004). Greater knowledge of the firm and the adoption of assessment processes more oriented to the prospective evaluation of economic viability of the firm should allow banks to better evaluate not only their client’s creditworthiness in the short-term but also the impact of the different types of funding on the financial stability of the firm in the long-term. As a result, the role of the banks would evolve from mere financing institutions to that of financial partners, with a positive effect on credit expansion and firms’ growth.

After a short a description of the main characteristics of the samples of the two surveys (Sect. 8.2), Sect. 8.3 outlines the results of the survey on Basel II. Section 8.4 analyzes the results of the local survey on firms’ relationship with the banking system and on growth financing. Some conclusions are reported on Sect. 8.5.

2 Characteristics of the Surveys

The national survey has been conducted on a sample of 3,231 firms of industry (excluding construction) and 1,159 firms of non-financial services with 20 and more employees. The sample represents 8.4% of the universe for industry and 4.3% for the service sector. These percentages double in the case of firms with more than 50 employees; the sample distribution is therefore relatively unbalanced towards big firms, as 60.8% of interviewed firms has more than 50 employees (Bank of Italy, 2006). In order to relate the sample to the universe, data were weighted by the number of businesses in the reference population.

The firms in the sample have an average dimension of 85.5 employees, €314,000 sales per employee, about one fifth of which are abroad (29.3% for industry and 8.7% for services), and in 2005 invested about €12,000 per employee. The firms are on average 30 years old and in 90% of case are public companies.

The local survey has been conducted on a sample of 214 firms, mostly of small dimension, with a relatively balanced distribution with respect to the universe: 80% of them has less than 20 employees, against 98% in the relevant universe. The average dimension, 13.9 employees, is smaller for the regions of Puglia and Basilicata, while sales per employee are about €245,000 and are not very different geographically. A significant gap between Emilia-Romagna and the South is found in foreign sales (16.2% for Emilia-Romagna and 5.6% for Puglia and Basilicata) and in average investment per worker (37.3 and 18.3 thousand euros, respectively).

Southern firms are relatively younger and were founded on average around 1995, 11 years after those of Emilia-Romagna; 7.8% of the first group of firms was founded before 1980, against 36.1% of the second group. A similar difference is found in the year of control acquisition (1998 against 1988) and in the age of the controlling subject, 43.1 against 54.7 years. The controlling subject is descendant of the founder in 45% of cases (50% for the firms of Puglia and Basilicata, and 35.7% for those of Emilia-Romagna). In the firms’ history the change of control occurred only in a limited number of cases, probably because firms are relatively young, and it is absent in 76.2% of cases. This percentage diminishes when the firm dimension increases.

As far as the participation to the property of the firm is concerned, the greater diffusion of joint stock companies in Emilia-Romagna (95.1% of the total against 70.6%) is not matched by a larger number of partners, who are about 3 in both cases and does not change substantially in higher dimensions.

3 The Knowledge of Basel II and the Initiatives Taken

3.1 The National Survey

38.6% of respondents said they already knew Basel II and were aware of its effect on the firm (Table 8.1). This share does not seem negligible, considering that the new regulation had not came into force yet when the survey was carried on and that the question was not just about the sheer knowledge of Basel II but about the firms’ evaluation of the effects on their relationships with banks. Knowledge of the new rules is above average for firms with 50 and more employees (46.4%), for joint stock companies (44.2%) and for those operating in manufacturing and energy (43.4%). From a geographical point of view, firms in the Southern Italy show the lowest degree of knowledge (35.5%).

Table 8.1 Knowledge of the effects of Basel II on firm operations and planned initiatives ^a (percentages)

Changes in firm behavior. – About half of the firms which said that they knew the new regulation also declared that they had already adopted some initiatives to adapt to Basel II or had the intention to adopt them during 2006. While there are no substantial differences among firms of different size, the decision to take initiatives is more frequent in Centre and South and Islands (62.2 and 54.1%, respectively) and in the service sector (53.1% against 47.8% in manufacturing and energy). There is also a considerable gap between the firms of the North-East (more than 50%) and those of the North-West (less than 40%).

Further disclosure of information is deemed necessary by the firms more aware of the effects of Basel II, which in 32.7% of cases envisaged an enrichment of the information about the firm. The second action envisaged, in order of importance, is the raise of capital to debt ratio (23.7% of the respondents).

Poor disclosure and undercapitalization are therefore perceived by the firms as a limit that should be overcome through skills and organizational means that are already available inside the firm. The strengthening of specialized skills in finance, either within the firm or hired from outside, is pointed out by only 19.8% and 16% of the respondents respectively. There are no substantial differences among size classes, except for a higher role given to external specialists by smaller firms,

which in general already hire professional financial advisers when they take long term decisions. From a geographical point of view, the firms in Central Italy are more active in taking the initiatives illustrated above: more than 40% intend to improve disclosure about the firm (against 25% in North-West) and more than 30% want to strengthen capital to debt ratios (as opposed to 15% in North-West). Moreover, 9% of larger firms want to receive a credit rating from a specialized agency. The percentage is higher among Southern firms (16%) and among those operating in the service sector (10%).

The intention to increase the capital ratio shows that a non negligible number of firms wants to ease indebtedness, presumably to receive a more favorable rating. Indeed, rating systems that are totally or partially based on quantitative indicators put a lot of weight on balanced capital positions and on the ability to generate enough cash flows to cover financial costs.

Changes in banks behavior. – Most of firms which had already examined the effects of Basel II did not perceive in the previous year relevant changes in banks’ behavior attributable to the next introduction of the new rules (Tables 8.2 and 8.3).

Table 8.2 Changes in the financing relationships accomplished by banks and related to Basel II^a (percentages)

Table 8.3 Changes in the financing relationships accomplished by banks and related to Basel II – national survey^a (percentages)

More than 80% did not notice changes in the length of credit inquiries and in loans’ maturity. Among the remaining firms, the share of those who perceived a lengthening in credit inquiries and in loans’ maturity is slightly higher. This could signal an ongoing adjusting process to the new rules.

A lower percentage (62%) of the firms that said to be aware of the effects of Basel II did not notice any change in bank behavior in granting larger or new loans. A non-negligible share did not obtain the loan requested (9.4%, which rises to 10.4% for small firms). Almost 30% instead perceives a higher availability of bank credit.

Banks did not change financing terms (interest rate, charges and collateral) for 73% of the sample. This share rises to 75% for firms with 50 and more employees and decreases to 69% for those with less than 50 employees. Moreover, 18% of the large firms (and 14% of the small ones) were subject to a rise in interest rates connected to the imminent introduction of Basel II and/or were required to increase their collateral. On the contrary, 13% of large firms (and 11% of small ones) paid a lower interest rate or gave less collateral.

Data show high variability in the responses on credit availability and on changes in credit terms, with high percentages both of firms perceiving an improvement and of those perceiving a worsening, suggesting that banks, by using more sophisticated techniques, can better evaluate their borrower’s risk and consequently can adjust credit availability and terms. This interpretation is confirmed by the fact that differentiation is stronger among firms belonging to larger size classes, which probably have relationships with banks that use internal ratings.

Twenty seven percent of firms said they were asked to supply more qualitative (for example on shareholders and management) and quantitative information, on their financial situation and prospective profitability. This seems to confirm that, in applying the regulation, the firm could have already seized the opportunity to strengthen bank-firm relationship on the grounds of a deeper cooperation on information exchange.

From a geographical point of view a slight difference emerges for Central Italy’s firms, which, compared to the average, show: (i) a lower bank readiness in granting larger or new loans (12% of cases against 9%); (ii) a worsening in credit terms (20% of cases against 16%); (iii) more frequent requests for information (31% of cases against 27%).

Changes planned by the firms in the relationships with banks. – Just above one fourth of firms showed the intention to reduce the number of lending relationships, as a result of the introduction of the new rules. This ratio is roughly the same in all areas and among firms of different size (Table 8.4). A substantial share of the sample thinks that strengthening the relationships with intermediaries is the best strategy in view of Basel II. This strategy is consistent with further evidence resulting from the survey. Firms seem to take actions to obtain favorable ratings from banks, and such actions are more effective if they are concentrated on just one intermediary and seem to be justified by the more accurate evaluation by the banks that derives from that.

Table 8.4 Changes in the relationship with banks that the firm intends to undertake (percentages of positive answers)

However this strategy is not unique: a small percentage of firms stated that they want to change the main bank (almost 5%, a percentage that becomes slightly higher for smaller firms and for those in Central and Southern Italy). A non negligible share of the firms with 50 employees and above (about 10%, without sharp differences among areas and sectors) said they wanted to increase the number of lending banks. These data show that for some firms the gains from stable bank relationships, potentially more efficient in exploiting information, are relatively modest compared to those resulting from new credit relationships.

3.2 The Local Survey

The firms interviewed in the local survey showed a better knowledge of the effects of Basel II. 61.7% of the sample had already closely examined the effects of Basel II on firm’s operations. Knowledge of the new rules is higher among companies, among firms with 50 employees or more and for those located in Southern Italy.

Changes in firms behavior. – The differences in responses between the national and the local surveys become less evident when one looks at the propensity to adopt specific measures. Among the firms that said they knew Basel II, 43.9% stated they had already taken or would take actions related to the coming into force of the new rules. The share is much higher among Southern firms (51.6% against 24.6% of the firms of Emilia-Romagna) and among those with 50 employees or more.

As in the national survey, disclosing more information about the firm and increasing the ratio of capital to total debt are the main actions, envisaged by one out of four firms, with a slightly lower share among Southern firms. The raise of capital to debt ratio which is deemed necessary to adequately cope with the new context is non-negligible: 61.2% of firms said they would increase the ratio by a rate ranging from 11 to 50%, whereas 12.2% of the respondents anticipated a raise of more than 50%.

Changes in banks behavior. – Opposite to the changes underway or expected inside the firms, few of the interviewees perceived relevant changes in banks’ behavior attributable to next introduction of the capital agreement (Table 8.2). Among the main changes, the most noticeable are the lengthening of credit inquiry, especially highlighted by Southern firms, and the request of more information on the state of business. There is no overall agreement on the effects of Basel II on banking credit supply: a fourth of the respondents perceives an easing, while 17.2% perceives a rationing.

Changes planned by the firms in the relationships with banks. – According to the firms interviewed in the local survey, the relationships with banks could in prospect undergo deeper changes in the behavior of entrepreneurs towards intermediaries. Less than a third of the firms stated they would reduce the number of lending banks, and this share is roughly uniform in both geographical areas (Table 8.4). The intention of reducing the number of intermediaries is more marked among smaller firms (but 38.2% of firms with less of 10 employees want to increase it) while it involves only 14.3% of the larger ones. A substantial share of the sample believes that strengthening the relationship with few intermediaries is the better strategy in view of the introduction of Basel II. Nevertheless in Puglia and Basilicata 32.3% of firms showed the intention to increase the number of lenders and 28.7% of changing the main bank. These responses could be interpreted as signs that in Southern regions, where firms are younger, relationship with banks are less stable.

4 Bank-Business relationship and Growth: The Local Survey

4.1 Banking Relationship

In the local survey the reasons underlying firms’ choice of the main bank and of multiple banking relationships were closely examined in order to understand how they could be influenced by the introduction of Basel II. Firms in the sample have on average relationships with 3 banks and the number grows up to 5 banks for firms with 50 employees and more (Table 8.5). Only one firm out of four borrows from just one bank.

Table 8.5 Local survey: main features of the relationship with the banks (means and percentages)

The firms motivated multiple relationships with financial intermediaries as a mean to receive more credit by fractioning banks’ risk, with the possibility to stimulate more competition among the financial partners so as to achieve better credit terms. Another reason given by firms is that it is difficult to receive from a single intermediary all financial services needed at better terms; this is particularly true for firms more active on foreign markets, which ask for services not always available with all banks. Finally, some firms reported heterogeneity in the valuation of balance sheet data and cash flows by banks. The possibility of divergent interpretations of the same set of data is recognized and considered rational in economic theory (Boot and Thakor, 2003).

The role of the main bank is prevalent, with an average share of firm total banking debt of around 57%. The share is lower for larger firms (from 63.2% on average for those with less than 10 employees to 37.2% for those in the largest size class). The length of the relationship with the main bank is on average of 9 years.

There are sharp differences of behavior connected with geographic location. The firms of Emilia-Romagna generally borrow from a higher number of intermediaries and establish longer credit relationships, on average 13 years compared to 7 for the firms residing in Puglia e Basilicata. Those differences could reflect the smaller size and younger age of firms in the latter regions, as 64% were founded over the last 10 years, compared to 16.3% of firms interviewed in Emilia–Romagna. Several empirical studies show that there is a positive relation between the age of the firm and the number and the length of credit relationship with banking partners (Farinha and Santos, 2002; Ongena and Smith, 2001). The length of the relationship with the main bank however does not appear to reflect the size of the firm.

For Southern firms the choice to borrow from a lower number of banks could reflect the existence of higher informational asymmetries which make access to credit market less easier and stricter relationships with lenders more advantageous. Asymmetric information however could considerably raise the costs of switching to a different lender when the bank develops an informational monopoly on the firm. These last effects could be substantial and may have induced the higher turnover of the main bank observed among Southern firm.

Another important factor influencing the different behavior observed among firms in the two areas could be the presence of a lower number of intermediaries (of different bank groups) operating in Southern regions.

4.2 Growth Financing

The choice to grow reflects the singling out of a market opportunity and the willingness to exploit it by accepting changes, even substantial, in the management and in the ownership of the firm. More than two thirds of the firms interviewed in the local survey regard their size as adequate (66.4%; Table 8.6), even though more than half of them has less than 10 employees. A similar evaluation emerged in a survey carried out by the Bank of Italy in 2005 in the province of Brescia: the firms interviewed, albeit convinced that business growth was a fundamental competitive factor in the long run, frequently judged their own size as optimal (Schivardi, 2005; Rossi, 2006). Even a survey on small firms conducted by Unioncamere shows that the 54% of respondents did not reinvest profits on firm growth (Unioncamere, 2005). Firms interviewed in Emilia-Romagna show the highest dissatisfaction for their scale of production (65.6% against 20.3% of Southern respondents).

Table 8.6 Local survey: decision to grow^a (percentages of positive answers)

More than 80% of Southern firms and two thirds of those of Emilia-Romagna said that they had considered the possibility of increasing the business scale during the last 10 years. The reasons underlying this choice are quite diverse and mainly reflect demand factors in the South (49.7%). In the North supply factors connected with technological and quality improvement of products seem to play an important role (41.2 and 43.1%, respectively). Less frequently the choice of increasing the size is motivated by a change in the type of product (16.2%).

The growth plan was carried out in most cases, but the accomplishment rate is higher in Emilia-Romagna (91.2% against 79.0%). The rate rises with firm size, going from 72.9% for the lowest size class to the 100% for the highest. These results could indicate the existence of obstacles to growth which could be either institutional or financial and could be connected to a smaller variety of financial instruments available to small firms. Small size mostly explains the generalized choice of carrying out the growth plan through greenfield investment in Italy; no firm in Puglia e Basilicata has chosen to build a plant overseas, an option adopted by 7.7% of the firms of Emilia-Romagna. Almost one fourth and one tenth of firms of the two areas respectively made a horizontal acquisition, while the acquisition of a supplier it is not so widespread in either areas, although it is more frequent in Emilia-Romagna.

There are substantial geographic differences in the ways growth is financed. For Southern firms self-financing is the main form of funding (45.5% of total funds; Table 8.7), while in Emilia-Romagna bank credit is the main source (49% of total funds, increasing with firm size). Almost one fourth of funds come from new capital placements, mainly among existing shareholders. This share decreases by 8 percentage points in Emilia-Romagna. As for self financing, loans from relatives (6.2% of total funds) are more important among smaller firms.

Table 8.7 Local survey: Financing the dimensional growth (average shares of total financing)

The mix of funds used to finance the growth shows how, especially for small firms, the opportunity to grow can be exploited only when there are enough internal resources. The banking system seems to support only firms which are over some size thresholds. This could represent a substantial obstacle for start-ups, which, according to a survey carried on by Unioncamere in 2005, are financed for 81.9% by their own capital (88% in the South; Unioncamere, 2005).

A mixture of growth financing in which internal sources are more relevant could however reflect the intention to avoid a deep change in the ownership and managerial structure of the firm (Bianchi et al., 2005).

The banking system, and particularly the main bank, can play an important role in supporting the growth process of small firms. Besides lending, the intermediaries can be advisers guiding firms in their choices and helping to reduce the risks of the project. The survey shows that financial backing of the main bank is often negligible. The majority of the firms pointed out that the main bank offered little or no support in terms of higher credit availability (56.2 and 28.6%; Table 8.8). The adviser role played by the intermediaries is even less remarkable. For the firms of Emilia-Romagna this role concerns only the industrial plan.

Table 8.8 Local survey: contribution of the main bank to the growth project (percentages)

The survey confirmed the existence of obstacles to growth. Financial constraints are among the main factors: the firms which abandoned the growth project ascribed it mainly to the lack of financial support (Table 8.9).

Table 8.9 Local survey: factors contributing to the quitting of the growth project^a (percentages of positive answers)

However credit availability is not the only constraint to growth. Other relevant factors reported by the interviewees are the financing cost and the uncertainty of the outcomes of the investment, pointed out by the 60% of the respondents. Other obstacles are connected to the governance of firms (15.8% abandoned the project since they were afraid of losing the control of the firm) and to bureaucratic delays (21.1%). Even more important are the problems firms encountered in finding the staff able to manage a larger firm. This was reported by all firms in Emilia-Romagna and by more than 30% of those located in Puglia and Basilicata.

5 Conclusions

The national survey shows that a non negligible share of firms is aware of the effects of the new regulation on relationships with lenders. The share is higher among the respondents to the local survey (which are of smaller size). About one half of the firms which answered they knew the new regulation thinks it is necessary to carry out some organizational changes, mainly consisting in enriching information about the firm, increasing the capital to debt ratio and strengthening the financial area. Firms’ answers to the perceived changes in banks’ behavior connected with the new regulation are ambiguous. A high share of respondents to the national survey did not notice any change in the length of credit inquiries and in loans’ maturity. Both surveys show that banks are asking for more qualitative and quantitative information. There is a wide dispersion in the answers on perceived changes in credit availability and terms, which could signal either differences in the way banks are adapting to the new regulation or in the ability to better evaluate borrowers’ creditworthiness and to better differentiate credit supply, with advantages for some borrowers and disadvantages for others.

In the national survey a trend in reducing multiple banking relationships is emerging. The local survey shows that a high share of small firms, located mainly in the Southern regions, has planned to increase the number of lending banks and/or to change the main bank. Qualitative responses signal that multiple banking relationships have still substantial advantages.

The section on firm growth of the territorial survey shows that the perception of limitations connected to small size is more widespread among firms residing in Emilia-Romagna than among those located in the South. In Emilia-Romagna the accomplishment rate of growth projects is also higher, with an important financial support by the banks. However it seems that there is not a wider backing by the intermediaries in terms of assistance and counseling, and that there are obstacles to growth connected to problems in finding management and in the governance of the firm.