Lending Behavior Research Articles

Measuring the Administrative Ability of Banks and their impact on Lending Behavior: Analytical research for a sample of banks listed on the Iraqi Stock Exchange

يهدف البحث الى قياس وتحديد علاقة الأثر بين القدرة الإدارية للمصارف عينة البحث (المتغير المستقل) وسلوك الإقراض (المتغير التابع)، فتم الإعتماد على التقارير السنوية لعينة من المصارف العراقية المدرجة في سوق العراق للأوراق المالية البالغة (8 مصارف) (مصرف بغداد، الإستثمار العراقي، الشرق الأوسط، الأهلي العراقي،الخليج التجاري، الموصل للتنمية والإستثمار، الشمال للتمويل والإستثمار، المنصور للإستثمار) من إجمالي المصارف المدرجة والبالغ (25 مصرفًا) للمدة (2006-2020) للإجاية على أبرز التساؤلات الواردة في مشكلة البحث (هل تؤثر القدرة الإدارية للمصارف عينة البحث في توجيه سلوك الإقراض؟). وتم قياس وتحليل متغيرات البحث بإستخدام عددٍ من الأساليب المالية (إسلوب تحليل مغلف البيانات (Data Envelope Analysis)(DEA)، إسلوب تحليل هيرشمان_ هيرفندال HHI) ) (Herfndahl-Hirschman)). وتم إختبار فرضيات الدراسة بإستخدام برنامج (Excel2010). وقد توصل البحث الى مجموعة من الإستنتاجات أهمها (إن هناك تأثير للقدرة الإدارية للمصارف عينة البحث في سلوك الإقراض)، هذا وإختتم البحث بعددٍ من التوصيات أهمها (ضرورة إهتمام المصارف عينة البحث برفع مستويات القدرة الإدارية الخاصة بها لما لها من آثارٍ إيجابية على توجيه سلوك الإقراض).

Banks, non-banks, and the incorporation of local information in CMBS loan pricing

Comparing banks to non-bank lenders, we investigate whether the geographical distance between lenders, borrowers, and their properties is reflected in the pricing of US mortgages that were included in US commercial mortgage-backed security (CMBS) pools during the 2000 to 2017 period. The difference in loan spreads when the bank-borrower distance increases from zero to the median of about 700 miles is 10 basis points, and this effect is more pronounced if the loan is collateralized by a riskier property. On the contrary, geographical distance does not seem to have any effect on the loan spread of mortgages granted by non-bank lenders. The difference in loan pricing across originator types (even after controlling for key mortgage and property characteristics) suggests that banks and non-bank lenders have different incentives, lending technologies, and/or different types of borrowers. Our results contribute to the emerging literature on non-bank lender behavior.

Determinants of branching decisions of State-controlled commercial banks: evidence from China

PurposeBranching is one of the crucial strategic non-price actions for banks. Previous studies on the impact of state ownership upon banks focus on bank lending behavior. This paper aims to offer a novel investigation of how state ownership affects bank branching behavior by examining state-controlled commercial banks (SCCBs) in the context of the largest developing and transitional country China.Design/methodology/approachThe two-part model (TPM) is applied to analyze the branching decision process. In the first stage, the dependent variable is the choice of bank branching dynamics and in the second stage the dependent variable is the number of new branches or the number of closed branches. For robustness check, the ordered probit selection model allowing for interdependence of the two stage decisions is also employed.FindingsUsing a unique dataset of bank branches in China, this paper finds that the branching decisions of Chinese SCCBs are driven by both profit motivated factors including population size, population density, income level, financial development and banking competition and politically motivated factors as represented with the proportion of SOEs. As a comparison, branching decisions of joint-stock banks in China are fully determined by profit motivated factors.Originality/valueFirst, this study is the first to explore the effect of state ownership on bank branching decisions, providing a new insight on the literature regarding to the impact of state ownership on bank decisions. Second, this study explores the potential effect of politically motivated factors on bank branching decisions, filling the gap in bank branching literature. Third, this study can contribute to bank branching literature by enriching the limited understanding of how SCCBs make branching decisions. Lastly, this study applies novel empirical strategies to analyze bank branching decisions, including the TPM and the ordered probit selection model.

The impact of non-performing loans on bank lending behavior before and amid COVID-19 Pandemic

The main objective of this study is to assess the impact of non-performing loans on bank lending behavior before and amid the COVID-19 pandemic. To do this research we have chosen fifteen private commercial banks in Bangladesh and data were taken from the year 2012 to the year 2021. Credit growth as a component of bank lending behavior was selected as the dependent variable and independent variables are non-performing loans to total loans, provision for loan losses to total loans, gross domestic product (GDP) rate, inflation rate, unemployment rate, total loans to total customer deposit, total equity to total asset, tier 1 ratio, growth of customer deposits, the dummy variables are used for incorporating the effect of covid-19. The paper suggests that NPL to total loan, provision for loan losses to total loan, total equity to total asset, and dummy variables (effect of covid-19 on NPL) are found statistically significant and inversely related to credit growth. Another three variables namely total loan to total deposit, deposit growth, and inflation variables are statistically significant and positively related to credit growth. All of the significant variables are consistent with general economic theory except the case for total equity to the total asset. To reduce non-performing loans, the banks may concentrate on improving corporate governance, maintaining strong loan review, thoroughly reviewing the KYC form, must ensure safety principles before approving a loan, collecting information from the CIB, accepting adequate collateral, examining the five C’s, name lending and connected party lending should be strictly prohibited which are quite related with behavioral and judgmental issues, would be a matter of further research.

COVID-19 and bank branch lending: The moderating effect of digitalization

We examine how COVID-19 and digitalization have changed bank lending behavior. Using microdata from Brazil, we investigate the determinants of these changes at the bank branch level and by credit type. Branches in areas more affected by COVID-19 reduced loan issuances and experienced lower credit revenues. These branches could not adjust their costs in the short term due to this decline in lending, resulting in increased marginal costs. We also find that branches of more digitalized banks were less sensitive to local borrowers’ conditions and could expand their clientele. These branches extended credit to borrowers in remote localities less affected by COVID-19, positioning themselves better than branches of less digitalized banks. Our research highlights the critical role of digitalization in distressed periods, as it enables banks to respond more swiftly and effectively, favoring financial stability.

Homophilous intensity in the online lending market: Bidding behavior and economic effects

Using transaction-level data from a large online lending marketplace, we explore the role of homophilous intensity in online lending and uncover the evidence of a significant impact of homophily on the bidding behavior and economic effects of both lenders and borrowers. Lenders are more likely to invest in borrowers with more homophilous traits, and homophily induces higher bidding amounts. Moreover, lenders charge lower prices to more homophilous borrowers, but are able to earn higher returns due to better repayment from these borrowers. Our findings suggest that homophilous intensity has a statistically and economically significant effect on both borrowers and lenders in the online lending environment.

Staying on top: Political cycles in private bank lending

The incentives for state-owned banks to boost lending before elections in order to improve the re-election odds of incumbent politicians are well recognized. We hypothesize that political influence on lending behavior in electoral autocracies extends to all banks, irrespective of ownership or political connections. Employing monthly data on individual banks, we consider the lending behavior of Russian banks in the four presidential elections held between 2004 and 2019. We find that both state-owned and private banks increased their lending before these presidential elections. Controlling for economic fluctuations, the pre-election lending surge is followed by a deterioration of loan quality the following year. We show that private banks are rewarded for boosting their lending before an election with government deposits after the election. Our findings support the view that the authorities in electoral autocracies such as Russia have the capacity and means to influence lending of private and state-owned banks in pursuit of favorable election outcomes.

Non-Performing Loans Effects on Profitability and Lending Behavior of Commercial Banks: Evidence from Yemeni Commercial Banks Sector

This study aimed to examine the effects of non-performing loans on the profitability and lending behavior of commercial banks in Yemen. The study used a descriptive-analytical approach. The data of the study were obtained from the annual financial reports (2010 -2018) of 6 commercial banks operating in Yemen. A panel data model was used in this study. The independent variable of the study was non-performing loans as measured by non-performing loans to total loans and advances ratio (NPLS) while the dependent variables of the study were profitability (ROA and ROE) and lending behavior as measured by loans and advances growth (LAG) of the commercial banks in Yemen. To test the hypotheses of the study, regression analysis was used. The results of the study showed that there is a positive and significant effect of the non-performing loans ratio (NPLs) on the return on equity (ROE) of commercial banks in Yemen. Whereas the study found no effect of (NPLs) on the return on assets (ROA) and loans and advances growth (LAG) of commercial banks in Yemen.

The effect of the regulation of the total amount of household loans on lending behavior of Korean banks

This study empirically analyzed the effect of Korea’s regulation of total amount of loans in household sector on bank prices like lending rate, interest business profitability, and loan portfolio decisions. Korea, which is known as a country with tight financial regulations among OECD countries, recently implemented a regulation on the total amount of household debt as a measure in response to the recent surge in household loan demand in the wake of the COVID 19 pandemic. While macro-prudential policy focusing on capital regulation is recognized as a global standard, confirming the effect of tightening household loan supply on changes in lending market is different from previous studies. The main research results and theoretical discussion confirmed in this study are as follows. First, restrictions on the amount of household loans, the possibility of tighter loan supply, and changes in loan regulation stance have led to an increase in lending rates at banks, as suggested by Kim (2019) and Castro et al. (2022). Second, the strengthening of regulations on the total amount of loans has improved the interest profitability of banks. It is presumed that Korean banks with strong market dominance are profitable with high interest margins despite a decrease in loan volume. Third, the effect of the total loan amount regulation on the bank loan portfolio decision was confirmed.

Putting Religious Bias in Context: How Offline and Online Contexts Shape Religious Bias in Online Prosocial Lending

Biases on online platforms pose a threat to social inclusion. We examine the influence of a novel source of bias in online philanthropic lending, namely that associated with religious differences. We first propose religion distance as a probabilistic measure of differences between pairs of individuals residing in different countries. We then incorporate this measure into a gravity model of trade to explain variation in country-to-country lending volumes. We further propose a set of contextual moderators that characterize individuals’ offline (local) and online social contexts, which we argue combine to determine the influence of religion distance on lending activity. We empirically estimate our gravity model using data from Kiva.org, reflecting all lending actions that took place between 2006 and 2017. We demonstrate the negative and significant effect of religion distance on lending activity, over and above other established factors in the literature. Further, we demonstrate the moderating role of lenders’ offline social context (diversity, social hostilities, and governmental favoritism of religion) on the aforementioned relationship to online lending behavior. Finally, we offer empirical evidence of the parallel role of online contextual factors, namely those related to community features offered by the Kiva platform (lending teams), which appear to amplify the role of religious bias. In particular, we show that religious team membership is a double-edged sword that has both favorable and unfavorable consequences, increasing lending in general but skewing said lending toward religiously similar borrowers. Our findings speak to the important frictions associated with religious differences in individual philanthropy; they point to the role of governmental policy vis-à-vis religious tolerance as a determinant of citizens’ global philanthropic behavior, and they highlight design implications for online platforms with an eye toward managing religious bias.

The impact of COVID-19 and bank capital ratio on loan changes of ASEAN-5’s banking industry

The COVID-19 pandemic has affected economies around the world, including the banking industry, and this depends on various factors. The aim of this study is to understand the influence of COVID-19 independently and through the moderation of bank capital ratios on changes in loans of Association of Southeast Asian Nations 5 (ASEAN-5) banking industry players. The study uses a sample of 86 banking companies listed on the stock markets of Indonesia, Malaysia, the Philippines, Singapore, and Thailand from the first quarter of 2018 to the fourth quarter of 2020 by employing the panel data regression technique. The results showed that COVID-19 had a significant negative effect on changes in bank lending. However, a bank’s capital ratio was not found to play a role in moderating the effect of COVID-19 on changes in bank lending. These findings have three main implications: (i) the role of the government in recapitalization and liquidity injection can eliminate differences in behavior between banks with the classification of capital ratios; (ii) there are no signs of zombie lending in ASEAN-5’s banking industry; and (iii) regulating incentives to change bank lending behavior in future crises must take into account that bank capital categorization will not be effective. AcknowledgmentThis study was made possible with the support of a research grant by Universitas Indonesia number NKB-533/UN2.RST/HKP.05.00/2022.

Non-performing loans and bank lending behaviour

This article empirically investigates whether the level of non-performing loans (NPLs) affects the bank lending behaviour using the bank-level data across 42 countries, spanning over the period from 2000 to 2017. We find a negative and statistically significant relationship between NPL and bank loan growth. This impact is not geographically restricted and is confirmed for the EU, non-EU, advanced, and emerging countries subsamples. We also examine the channels through which NPLs affect loan growth. Our results show that the association between NPL and loan growth is more pronounced for well-capitalized banks. We find no evidence in support of an effect of asset management companies on the negative association between NPLs and loan growth. In addition, our results are robust with respect to alternative measure of credit risk and different specifications.

Bank lending behaviour and systemic banking crisis in Africa: The role of regulatory framework

AbstractWe examine how regulatory framework shapes the impact of bank lending behaviour on the probability of systemic banking crisis by using data from 52 African countries over the period 2006–2018. The study found that banks that lend beyond a certain level of threshold have the greater probability of causing a systemic banking crisis. The study provides empirical evidence in support of the argument that above average lending behaviour reduces the predicted probability of a systemic banking crisis in the presence of audit independence, at stringent–capital regulatory requirement, central bank independence and monetary policy framework.

Blockchain and Bank Lending Behavior: A Theoretical Analysis

The application of blockchain technology in the financial industry has become the focus of global attention; thus, the traditional credit business of commercial banks faces unprecedented opportunities and challenges. Based on the theoretical analysis, this study systematically examines the dynamic impact of blockchain on the lending behavior of commercial banks. The results indicate that, in the case of interest rate marketization, the blockchain expands bank credit through the mechanism of “reducing management costs”; in the case that interest rates have not yet been marketized, the blockchain can also increase bank lending through the channel of “correcting the price of funds” by narrowing the difference between the market equilibrium and the bank deposit interest rate. The results are of great significance for a deeper understanding of the impact and mechanism of blockchain on bank credit. JEL codes: G21; O31; O33

The Impact of COVID-19 on Demand and Lending Behavior in Prosocial P2P Lending

I derive two innovative metrics, capturing the demand and the excess demand for prosocial P2P loans in the US. The measures are based on a data set comprising prosocial P2P loan applications obtained from the US P2P lending platform Kiva for the period of November 2011 to December 2022. Furthermore, I analyze how both indices are influenced by the COVID-19 pandemic. Interestingly, the measures for the current pandemic development show a negative impact on demand while the COVID-19 reproduction rate shows a positive relation, indicating a pro-active behavior of borrowers. On the other side, socially motivated lenders seem to be less generous in providing interest-free loans in times of a worsening pandemic. As it turns out, the risk-free interest level positively impacts demand and excess demand for prosocial lending on Kiva even though the loans were granted without any interest.

Alternative Analysis of Bank Lending Channel in Turkey After 2010

Traditional bank lending channel in the monetary transmission explains the relationship between monetary policies of Central Banks and the bank lending behavior. In this article, the existence of traditional bank lending channel and an alternative analysis of bank lending in the monetary transmission of Turkey is investigated between 2011 and 2018 using bank level data and GMM method. Additionally, we indicate whether the reaction of banks differ according to their bank specific caharacteristics. Asset quality, capital adequacy, liquidity ratio, asset size and profitability rates are used as bank characteristics. Since Central Bank of Turkey began to use multiple monetary policy tools to cope with financial stability issues at the end of 2010, the choice of an indicator for the monetary policy is important. In this article, we revise the analysis of bank lending view as the key assumptions of traditional bank lending are not valid. Different from prior research, to analyze the change in credit supply we use both monetary policy rates and actual interest rates (BISTREPO and weighted average cost of Central Bank of Turkish Republic) as monetary policy indicators. Using monetary policy rates, our findings indicate that traditional bank lending channel does not work. Using BISTREPO as monetary policy indicator, our findings indicate that it is significant in the credit supply change. Taking the bank characteristics into account only bank size is significant in mitigating the negative effects of monetary policy shocks. This finding shows that banks that have larger asset size may find different funding alternatives and continue to lend during monetary policy shocks. Additionally, when weighted average cost of the CBTR funding are used as a monetary policy indicator, our findings show that this rate is also significant in the credit supply change and similar to prior results higher bank size may mitigate the negative effects of monetary policy shocks.

Multimarket Banks, Local Economic Shocks, and Lending Behavior: When the Effect is on Cost but not on the Amount of Deposit Fundings

Multimarket Banks, Local Economic Shocks, and Lending Behavior: When the Effect is on Cost but not on the Amount of Deposit Fundings

Determinate of Lending Behavior of Joint Venture Banks in Nepal

The purpose of this research is to examine the lending behavior of Joint venture banks in Nepal. The independent factors in this study are AQR, CAR, ROA, CRR, BS, GDP, and inflation rate, and dependent variable in this research is TL.The secondary data was used from the annual reports of all joint venture banks throughout a five-year period, from 2017 to 2021. Using SPSS 25 version, descriptive as well as causal-comparative research designs have been useful to analyze and interpret this data. For the sample, all seven Joint Venture banks are utilized. It is best to employ the purposive sampling technique. It has been demonstrated how independent variables affect the dependent variable using multiple linear regression models. The findings indicate that CRR and BS have considerable positive effects on TL and significant favorable effects but CAR has negative and significant effect on TL. The effects of AQR, ROA, GDP, and inflation on TL are negligible. Similarly, AQR, CAR, and inflation have been negatively related to TL but ROA, CRR, BS, and GDP have been positively related to lending.

The Influence of Bank Liquidity on Lending Behaviour of Deposit Money Banks (DMBs) in Nigeria (2006 - 2020)

The relevance of DMBs and their lending activities in Nigeria necessitates concern about the liquidity condition of these banks. This is particularly pertinent, given the spate of recurring unpalatable incidences in the Nigerian banking sub-sector even after the 2005 consolidation. The objective of the study was to examine the influence of bank liquidity on lending behaviour of DMBs in Nigeria. Twelve (12) listed DMBs were selected using the convenience sampling technique. The ex post facto research design was adopted and secondary data drawn from the sampled DMBs from 2006 to 2020 were used for analysis. The data were analyzed using descriptive statistics and regression analysis. The results revealed that bank liquidity significantly influences lending behaviour of DMBs. However, the loan to total assets ratio was found to exert the highest relative influence on lending behaviour of DMBs. It was therefore recommended that DMBs should prioritize the maintenance of a dynamic loan to total assets ratio. Also the Central Bank of Nigeria and other regulatory bodies should be more proactive in ensuring DMBs’ liquidity and sustainability.

Political connections and bank behaviour

AbstractUsing disaggregated data on Indian state‐owned banks, we study how political connections influence their lending behaviour. The findings indicate an overall credit expansion of 10% during election years for banks with political connections, driven by increased lending to agriculture and Small and Medium Enterprises. Further disaggregation reveals cycles in such lending driven by electoral considerations, primarily for banks with political connections. In turn, there is a gradual weakening in the asset quality of these banks. The net effect is manifest in lower productivity. The key policy implication is that electoral manipulation exerts significant economic costs.