Authors: Sangwon Suh(Chung-Ang University), Kyung Rok Wi(BOK)

In this paper, we empirically examines the effects of relationship banking on bank lending to small and medium-sized enterprises by using actual transaction-level bank lending data in Korea. We find that a stronger relationship banking leads to positive results by reducing lending rate and overdue loans. However, those positive effects are not sufficiently significant.  To foster relationship banking in Korea, the Korean Financial Supervisory Service initiated a program called ？？the Relationship Banking Agreement？？(RBA) between banks and small and medium-sized enterprises. Our bank loan data contain the information about the RBA. We empirically assess whether the RBA could yield positive effects on bank lending to small and medium-sized enterprises or not. We cannot statistically confirm the effects of the RBA on bank lending to small and medium-sized enterprises. Moreover, the RBA has been implemented in a way that is inconsistent with the original purpose of the policy. This result suggests that the relationship banking to small and medium-sized enterprises has not been full-fledged yet but needs to be developed further in Korea.