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Banking experts will assess impact of Covid-19 on UK SMEs, new study

Tuesday, 10 November 2020

The financial risk to small and medium-sized businesses (SMEs) in the wake of Covid-19 is being investigated by researchers at Nottingham University Business School.

The UK-wide study, in collaboration with the Bank of England, the Confederation of British Industry (CBI), the University of Exeter and the University of Lancaster, will examine the resilience of SMEs and their risk exposure – a measure of potential loss or future losses - resulting from Covid-19.
The researchers will subsequently develop new methods to help support SMEs in the aftermath of the pandemic.

SMEs are widely recognised as a key pillar of the UK economy and more than 99% of the approximately six million businesses in the UK are SMEs, employing more than 16 million workers1.
As the COVID-19 crisis unfolds, SMEs are faced with unprecedented challenges, including declining revenues, inability to retain employees, postponement of investments and loan repayment difficulties.

The 18-month study, funded by the Economic and Social Research Council (ESRC), as part of UK Research and Innovation’s (UKRI) rapid response to COVID-19, will construct a measure of economic risk for pandemic extreme events and develop a new credit risk assessment protocol to evaluate SME borrower profiles (or score cards).

Building on the integration of economic and non-economic data, the project will make
use of Artificial Intelligence (AI) to widen the range of firms that can be rated methodologically and that can, therefore, access different funding channels.

As a result, the project will address the problem of structural credit constraints for SMEs when exposed to extreme pressures. A major part of the project will be devoted to the implementation of Machine Learning and Deep Learning to draw information from varied sources of financial, sociodemographic, and geographical data.

By combining various datasets and factors that have previously been considered in isolation, the experts will be able to construct one holistic set of metrics to provide a complete picture of the challenges and opportunities facing SMEs.

Project lead, Dr Meryem Duygun, a Professor of Banking and Finance at the Nottingham University Business School, said: “The pandemic has caused significant economic disruption at both national and international levels, but it is also providing an ideal opportunity for reform to improve the fundamentals of the UK’s economic structure.

"Our study will contribute to enhancing SMEs’ resilience and boost their (extreme event) risk management and prevention skills. To achieve this, we will exploit a range of novel approaches specifically tailored for UK SMEs."

By accurately assessing the overall pandemic risk and credit risk exposure of SMEs, we hope that our study will assist policy makers to design adequate and timely measures. Equally, the banking sector may utilise our study findings to improve their design of score cards during pandemic events
Professor Meryem Duygun, Nottingham University Business School

Dr Eddie Gerba, Research Manager at the Bank of England, said: “This is a fantastic opportunity to deepen our understanding of the challenges and risks that SMEs face in rare and extreme events such as COVID-19, and better equip them for resilience.”

Flora Hamilton, Director of Financial Services at the CBI, said: “This study will provide some useful tools to assess the credit risk exposure of SMEs in the wake of the COVID-19 pandemic. With the winter months likely to disrupt demand and cash flow in many sectors of the economy, this research will be valuable for informing future policy decisions and will help improve the resilience of many SMEs.”

Story credits

More information is available from Professor Meryem Duygun in the Faculty of Social Sciences at the University of Nottingham at Meryem.Duygun@nottingham.ac.uk; or Katie Andrews, in the Press Office at the University of Nottingham at Katie.Andrews@nottingham.ac.uk

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Notes to editors:

  1. Federation of Small Businesses
Katie Andrews - Media Relations Manager Social Sciences
Email: katie.andrews@nottingham.ac.uk
Phone: 0115 951 5751
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The University of Nottingham is a research-intensive university with a proud heritage. Studying at the University of Nottingham is a life-changing experience and we pride ourselves on unlocking the potential of our students. We have a pioneering spirit, expressed in the vision of our founder Sir Jesse Boot, which has seen us lead the way in establishing campuses in China and Malaysia - part of a globally connected network of education, research and industrial engagement. Ranked 103rd out of more than 1,000 institutions globally and 18th in the UK by the QS World University Rankings 2022, the University’s state-of-the-art facilities and inclusive and disability sport provision is reflected in its crowning as The Times and Sunday Times Good University Guide 2021 Sports University of the Year. We are ranked eighth for research power in the UK according to REF 2014. We have six beacons of research excellence helping to transform lives and change the world; we are also a major employer and industry partner - locally and globally. Alongside Nottingham Trent University, we lead the Universities for Nottingham initiative, a pioneering collaboration which brings together the combined strength and civic missions of Nottingham’s two world-class universities and is working with local communities and partners to aid recovery and renewal following the COVID-19 pandemic.

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