While that is in the nature of small and medium-sized institutions with a regional focus, it also creates a dependency which makes them vulnerable. So it is all the more important to take this concentration risk into consideration in risk management – particularly with regard to its qualitative elements.
If there is no way to avoid concentration risks, the principle of “know your customer” gradually becomes more critical. And that is exactly where the strength of small and medium-sized institutions lies. They know the risk profile of the individual borrowers as well as the value of their collateral. And they know the regional markets and their potential.