Optimal Decision Model of Leading Bank of Syndicated Loan under Supply Chain Credit Guarantee Mechanism

Small and medium enterprise (SME) acts as an essential cornerstone in economic development in Taiwan, and its operation efficiency depends on the stability of supply chain. The effectiveness of financing channel of SME is a key issue of the stability of supply chain. However, on the one hand, SME often can’t provide sufficient credit or collateral, so the bank tends to avoid default risks by not lending money to SME, but on the other hand, the bank still needs to lend money out because the major source of its revenue comes from interest of lending. In short, there is a dilemma between supply and demand in financing channel.
To deal with this problem, a model named “Firefly Counterpart Guarantee”, which is founded by Small and Medium Enterprise Credit Guarantee Fund, is introduced in this research. This model works under credit guarantee mechanism: the manufacturer helps its supplier (SME) to have a loan from the bank by sharing part of the default risk of its supplier. If the manufacturer, a stakeholder of its supplier, can guarantee banks from part of the loss when its supplier is in default, the bank will have confidence in loaning. This research also refers to the syndicated loan mechanism: the supplier could borrow money from more than one banks. Banks would have more confidence in loaning when the default risk of the supplier is mutually shared by multiple participants. Above all, the goal of this research is to enhance the willingness of the bank when making loan to SME.
This research builds up a numerical model to maximize the expected net income of the leading bank of syndicated loan by varying four variables (Investment ratio in syndicated loan, Loan-to-value (LTV), Loan rate, and Default risk sharing ratio of the supplier by the manufacturer), under conditions of no party with negative profits. Next, this research simulates different decision-making situations by applying sensitivity analysis to four parameters (Possibility of default of the supplier, Ratio of shipment while in default, Material cost of the supplier, and Upper limit of loan rate). When a sound plan of income management is made, the leading bank would be more willing to have cooperation with supply chain under credit guarantee mechanism.
The result of this research shows that leading bank tends to equally share the loan with participant banks, and increases the loan rate as the priority method to improve profitability. While the loan rate is limited by the law or market, methods then depends on each situations. However, the practical use of above methods also involves the negotiation process between the manufacturer, the supplier, and the other banks of syndicated loan; the effectiveness of the provided plan in this research depends on the bargain power of the leading bank.