Modelling the trident SME-bank relationship

Relationship banking (RB) with SMEs has been approached as a one-size-fits-all where no differences exist between micro, small, and medium businesses. Nevertheless, recent research has clearly identified three distinct levels of RB depending on variables such as the size and complexity of the business and the amount of borrowing. In this study, we create an original model of this fundamental trident, presented as a system of postulates and inferences in mathematical terms, to capture the structure and dynamics of the three RB levels from the supply/bank side. The model systematically shows the existence of and describes the three RB levels. Further, it highlights how each of these levels is dependent on the determinant variables and how a comparison between the three levels is possible based on the per-capita contribution of each of the determinant variables, in turn, to the per-capita RB service production. Our model provides an analytical framework that can assist banks and researchers to rigorously assess and study each level separately or in comparison to the others. It is also beneficial as it can be used to calculate the optimal allocation of the bank's limited resources among the three levels of RB and to achieve maximum value creation for all stakeholders.