Bank Credit Market Research Articles

Bank cost efficiency and credit market structure under a volatile exchange rate

We study the impact of exchange rate volatility on cost efficiency and market structure in a cross-section of banks that have non-trivial exposures to foreign currency (FX) operations. We use unique data on quarterly revaluations of FX assets and liabilities (Revals) that Russian banks were reporting between 2004 Q1 and 2020 Q2. First, we document that Revals constitute the largest part of the banks’ total costs, 26.5% on average, with considerable variation across banks. Second, we find that stochastic estimates of cost efficiency are both severely downward biased – by 30% on average – and generally not rank preserving when Revals are ignored, except for the tails, as our nonparametric copulas reveal. To ensure generalizability to other emerging market economies, we suggest a two-stage approach that does not rely on Revals but is able to shrink the downward bias in cost efficiency estimates by two-thirds. Third, we show that Revals are triggered by the mismatch in the banks’ FX operations, which, in turn, is driven by household FX deposits and the instability of Ruble’s exchange rate. Fourth, we find that the failure to account for Revals leads to the erroneous conclusion that the credit market is inefficient, which is driven by the upper quartile of the banks’ distribution by total assets. Revals have considerable negative implications for financial stability which can be attenuated by the cross-border diversification of bank assets.

Why are small and medium-sized businesses in Africa turning away from the bank credit market?

Why are small and medium-sized businesses in Africa turning away from the bank credit market?

Current trends in bank lending in the Republic of Moldova

Bank lending represents the basic form of lending activity in the Republic of Moldova, as well as the core of the national lending system. It has the important function of contributing to the normal functioning of the financial system and contributing to the economic development of the country. The basic purpose of the conducted research was to determine the basic trends of the evolution of bank lending in the Republic of Moldova, as well as to highlight its qualitative transformation. For this, the official financial reports in the addressed field were examined, as well as the related information published in open sources of information. The carried out research demonstrated a certain continuous expansion of the lending activity of local banks. In the same way, during the last years there has been a certain qualitative transformation of it through the exploration of separate segments and niches of the market, the application of advanced digital technologies, as well as the continuous adaptation to the mobile conditions of the domestic financial market. The top commercial banks can be considered as the main promoters of the development of bank lending. The over-liquidity and pandemic crises, as well as the anti-crisis measures undertaken by the authorized public institutions, are the stimulating factors of the innovative process on the bank credit market. This article comes to present a complex picture of bank lending in the dynamics of the last decade.

MODERN FEATURES OF BANK CREDIT SUPPORT TO AGRICULTURAL ENTERPRISES IN UKRAINE

The agricultural sector occupies a significant share in the Ukrainian economy, which is why the author analyzes the role of the bank credit market in providing agricultural enterprises with financial resources. Relying on theoretical and methodological research, two groups of factors have been singled out that generate the specifics of lending to farmers. The current state of capital investment financing through bank lending is presented. Interest rates on bank loans and volumes of lending to agricultural enterprises are considered. The rating of the largest creditors of the agricultural sector of Ukraine is formed. The dependence of gross value added on the volume of agricultural lending has been studied. The state regulation of specialized banks in order to create the most favorable conditions for lending to agricultural enterprises is substantiated.

P2P Lenders versus Banks: Cream Skimming or Bottom Fishing?

Abstract We derive three testable predictions from a bank-P2P lender model of competition: (a) P2P lending grows when some banks are faced with exogenously higher regulatory costs; (b) P2P loans are riskier than bank loans; and (c) the risk-adjusted interest rates on P2P loans are lower than those on bank loans. We test these predictions against data on P2P loans and the consumer bank credit market in Germany and find empirical support. Overall, our analysis indicates that P2P lenders are bottom fishing, especially when regulatory shocks create a competitive disadvantage for some banks. (JEL G21)

Firm–bank credit network, business cycle and macroprudential policy

We present an agent-based model to study firm–bank credit market interactions in different phases of the business cycle. The business cycle is exogenously set, and it can give rise to various scenarios. Compared to other models in this literature strand, we improve the mechanism according to which the dividends are distributed, including the possibility of stock repurchase by firms. In addition, we locate firms and banks over a space and firms may ask credit to many banks, resulting in a complex spatial network. The model reproduces a long list of stylized facts and their dynamic evolution as described by the cross-correlations among model variables. The model allows us to test the effectiveness of rules designed by the current financial regulation, such as the Basel III countercyclical capital buffer. We find that the effectiveness of this rule changes in different business cycle environments and this should be considered by policy makers.

Measurement and Analysis of the Competitiveness of China Commercial Bank’s Loan Market

China’s economy presents a new normal of speed changes, structural optimization, and power conversion. Deepening supply-side reforms and controlling financial risks are two prominent themes of current economic work. With the economic growth slowing down and the financing environment tightening, the credit risk of the banking industry is being exposed more quickly. This article uses a structured method and an unstructured method to measure the competitiveness of China commercial bank credit market. The structured method uses the HHI (Herfindahl–Hirschman Index), and the unstructured method uses the Lerner Index. This article compares the sample banks’ 2008–2015 industry loan total HHI and Lerner Index. The results of HHI and Lerner Index are basically the same, which indicate that the competitiveness of the China commercial bank credit market is generally at a low level. However, the Lerner Index has a clear upward trend after 2014, which indicates the possibility of increased competition in the credit market.

Shadow Bank Run, Housing and Credit Market: The Story of a Recession

Abstract This paper assesses the interaction between the housing and credit markets and shadow banks, with the possibility of bank runs. The findings illustrate how a negative TFP shock is amplified by macro-financial and macro-housing channels through household balance sheets, bank balance sheets, and liquidity channels. If the shock renders the shadow banking system insolvent, two equilibria coexist: the no-run equilibrium and the run equilibrium. In this instance, run is a sunspot coordination failure; if households receive a negative signal from fundamentals and stop rolling over deposits to the financial sector, banks are not able to fund their losses with new deposits. So they are forced to liquidate their assets at an endogenous fire sale price. The main finding of this paper is that the model with housing provides a comprehensive account of the consequences of economic crises, namely the house price double-dip, the output downward spiral, and the lengthy recovery period. To eliminate the bank-run equilibrium, this paper proposes macroprudential policy tools in the form of capital adequacy buffers and loan-to-value ratios. Then a welfare analysis is applied to determine the optimal policy mix.

THE CHALLENGES OF BANK LENDING OF SMALL AND MEDIUM BUSINESSES: MODERN RUSSIAN SPECIFICITY

The role of lending to small and medium-sized businesses in the development of the modern Russian economy has been considered. Bank lending in this particular segment of the economy has been analyzed with highlighting the main trends and problems. The most important role of the Central Bank of the Russian Federation in solving the problems of lending to small and medium businesses through the monetary policy and the improvement of the regulatory framework has been determined. The main ways to solve the existing problems in the bank credit market of small and medium businesses have been identified. The state support for lending to small and medium business entities through partial subsidizing of interest rates has been considered thoroughly, models of partial government subsidizing of interest rates at the stage of obtaining a loan and at the stage of loan repayment have been presented.

Trends in the Innovative Development of the Credit Market and Its Role in Promoting the National Economic Growth

The subject of the research is the credit market as a significant but currently underestimated and underused institution of the innovative development of the national economy.The purpose of the research was a system study of the trends in the innovative development of the credit market contributing to accelerating the innovative development of the country and creating the potential for entering the top five economies in the world.Results of the research: three trends in the innovative development of the national credit market have been revealed. The first trend concerns the formation of a digital environment for the credit market players. The second trend is creating conditions ensuring a more active participation of credit institutions in financing and crediting projects that ensure the modernization and innovative development of the national economy. The third trend is the innovative development of credit institutions themselves.Conclusions based on the research findings: to establish the digital environment for credit market players, it is necessary to create a credit market ecosystem based on the Bank of Russia’s platform integrated with the ecosystems of major credit institutions, medium and small bank platforms and credit market infrastructure organizations. In terms of creating conditions for more active involvement of credit institutions in innovative project financing and crediting, measures should be taken to form the flow of demand for innovations, create the innovation infrastructure, seek the government support for the integration of the credit market in the innovation process. The innovative development of credit institutions themselves is suggested to be viewed as a continuous renovation process aimed at meeting and anticipating financial and non-financial needs of customers through the use of digital technologies and the customer relationship management experience.

Limited loan rate differentiation, guanxi, loan size and loan maturity in the Chinese bank credit market

Since 2004, China has partially liberalized loan rate setting by the banks, but loan rates remain stubbornly within narrow bounds. We argue that competition in the loan market is signalled through the variation of loan deal terms and loan maturity rather than loan rates. We examine the determinants of loan deal conditions in terms of size and maturity. This paper focuses on the role of single firm-bank relationships in determining loan deal conditions as evidence of guanxi in Chinese banking market. Commercial loan deal terms of listed companies are matched to provider banks over the period 1999–2012 and sub-sample estimation for the pre-2004 and post-2004 periods confirm a change in the bank-firm-loan relationship. We find that single firm-bank relationships are associated with larger loan size and longer loan maturity in the pre-liberalization period but that this relationship has weakened in the liberalization period.

The influence of the banking credit market on economic development of the country.

The influence of the banking credit market on economic development of the country.

P2P Lenders versus Banks: Cream Skimming or Bottom Fishing?

We derive three testable predictions from a bank-P2P lender model of competition: (a) P2P lending grows when some banks are faced with exogenously higher regulatory costs; (b) P2P loans are riskier than bank loans; and (c) the risk-adjusted interest rates on P2P loans are lower than those on bank loans. We test these predictions against data on P2P loans and the consumer bank credit market in Germany and find empirical support. Overall, our analysis indicates that P2P lenders are bottom fishing, especially when regulatory shocks create a competitive disadvantage for some banks.

Značaj bankarskih kredita za finansiranje poljoprivrede u Srbiji

Agricultural loans present unutilized bank credit market segment in Serbia. This is not only missed profit opportunity for banks, but also serious deficiency that slows down the development of agriculture and rural areas. Paper uses FADN, NBS and bank balance sheet data in order to analyse supply and demand side of this credit market segment, with the aim to better understand the conditions for its development. Paper recommends better education of producers and lenders. Banks should better understand the requirements of agricultural producers and risks of the production to be able to create tailored credits. Insurance has very important role in specific risk hedging and can facilitate agricultural loans. There is also a need to adjust the conditions for obtaining subsidized loans, while the land size is considered as a key prerequisite for obtaining loans in the situation of large fragmentation of properties.

Firm and country determinants of debt maturity: New international evidence

AbstractThis paper shows the influence of firm‐ and country‐level determinants on debt maturity structure for 39 countries during the period 1995–2012. Efficiency of the legal system, protection of creditors' rights and bank concentration show a positive relationship with debt maturity, while the weight of banks in the economy has a negative effect on firm debt maturity. The positive influence of bank concentration on corporate debt maturity reveals that creditors are more likely to extend debt maturity when the bank credit market is concentrated. This positive effect of bank concentration is reduced in high quality institutional environments. Moreover, the effects of bank concentration and the weight of banks in the economy on corporate debt maturity are higher in smaller firms.

Bank capital and credit market competition: Will competitive pressure lead to higher capital levels?

This paper establishes a theoretical model to study the relationship between credit market competition and bank capital. In the model, bank capital can alleviate the debt overhang problem, and the extent to which banks can enjoy the gain of holding capital is decreasing in the competitive pressure in the credit market. It is shown that credit market competition reduces banks' incentive to hold capital. Deposit insurance also induces banks to hold less capital. In addition, bank capital regulation is welfare improving, and banks may voluntarily hold capital in excess of regulatory minimums.

The Macroeconomic Effect of Shadow Credit Market Financing

Shadow credit market is a credit creation market which is parallel to the bank credit market. It has the function of credit creation, liquidity conversion and maturity transformation. In this paper, based on the different participants of shadow credit market, we divides it to the dealer, formal financial institution and private lending credit markets and measures the scale of shadow credit market. Based on the monthly data from year 2006 to 2014, by constructing VAR model, the paper attempts to analyze the macroeconomic effect of the shadow credit market financing. The research results show, firstly, shadow credit market as a way of resource allocation, has certain positive effect in meeting the needs of social investment and financing and promoting economic growth. Secondly, shadow credit market has changed the traditional money supply model and transmission mechanism of monetary policy, expanding the money supply and weakening the effectiveness of monetary policy. Thirdly, the shadow credit market impact the price level through influencing credit market scale and money supply.

The Roles of Bank and Trade Credits: Theoretical Analysis and Empirical Evidence

This study investigates the roles of bank and trade credits in a supply chain with a capital‐constrained retailer facing demand uncertainty. We evaluate the retailer's optimal order quantity and the creditors' optimal credit limits and interest rates in two scenarios. In the single‐credit scenario, we find the retailer prefers trade credit, if the trade credit market is more competitive than the bank credit market; otherwise, the retailer's preference of a specific credit type depends on the risk levels that the retailer would divert trade credit and bank credit to other risky investments. In the dual‐credit scenario, if the bank credit market is more competitive than the trade credit market, the retailer first borrows bank credit prior to trade credit, but then switches to borrowing trade credit prior to bank credit as the retailer's internal capital declines. In contrast, if the trade credit market is more competitive, the retailer borrows only trade credit. We further analytically prove that the two credits are complementary if the retailer's internal capital is substantially low but become substitutable as the internal capital grows, and then empirically validate this prediction based on a panel of 674 firms in China over the period 2001–2007.

Informal Loans in Russia: Credit Rationing or Borrower's Choice?

This paper examines the strategies of Russian households for choosing either the formal or informal banking sector as a source of credit. We aim to learn why households refuse to become clients of a bank and prefer to instead raise funds by borrowing from individuals – friends, colleagues, relatives, and other private parties. We use the results of “Monitoring the Financial Behavior of the Population” (2009-2010), a national survey of Russian households. Our results suggest that a household’s choice of the informal credit market is based not only on economic factors, but also on some institutional ones, including financial literacy, trust in the banking sector, and credit discipline. We show that choosing the informal market is explained by a lack of financial literacy, measured by mathematical competence and home accounting, as well as by a lack of trust in the banking sector as a whole. Borrowers from private parties demonstrate a higher degree of credit discipline: those who believe that repaying a loan is not obligatory are less frequently among informal borrowers and they choose the bank credit market. Our findings, however, are still in line with credit rationing theory. We show that better financial conditions reduce a household’s probability to use both formal and informal credit markets in favor of pure bank borrowing.

Crédito bancário corporativo no Brasil: evolução recente e perspectivas

This article aims to analyse the evolution of the corporate banking credit market in Brazil during the recent cycle (january 2003 to june 2009) from a Keynesian theoretical reference point. The article focuses on the dynamics of the six major segments of this market (industry, commerce, services, infrastructure, real estate and rural sector), highlighting their main similarities and differences concerning the cyclical dynamics, the participation in the total corporate banking credit, the origin of resources, the composition of capital ownership and the performance of public and private banks.