Construction Loans Research Articles

Environmental, Social, and Governance Scores and Loan Composition Inside United States Banks

We analyze the loan portfolios of United States banks from 2013 to 2023, showing that high environmental, social, and governance (ESG) banks have larger shares of consumer loans and commercial loans and smaller shares of construction loans and real estate loans. We also find that the governance pillar (G) is more tightly related to the bank loan composition compared to the environmental (E) and social (S) pillars. Furthermore, we show that construction loans and real estate loans decrease more considerably with bank ESG scores inside countries with high gas emissions, i.e., where ESG issues would arguably be more serious. Our interpretation is that sustainable banks are reluctant in lending money for real estate projects, exposing them to potentially high ESG risk. These findings contribute to developing a deeper insight about the relationship between ESG and bank lending, which, in the previous literature, has been treated more frequently in aggregate terms instead of separating loan types. Our outcomes suggest that sustainability is crucial for the availability of funds in the real estate sector, delivering important insights to bank and real estate managers, besides policy makers.

Trends and Transformations in Home Loan Processing: A Case Study of HDFC Hyderabad

The housing finance sector in India is growing, driven by rising home ownership demand and supportive policies. This study, "Trends and Transformations in Home Loan Processing: A Case Study of HDFC Hyderabad," explores HDFC Bank's home loan offerings, focusing on types like purchase, construction, and renovation loans. It examines recent trends, customer satisfaction, and challenges, using surveys and interviews for data collection. The findings highlight evolving borrower profiles, technological advancements, and government initiatives like PMAY, offering insights for improving customer service and operational efficiency.

Zombie lending, labor hoarding, and local industry growth

After the bursting of real estate bubbles in 1991, Japanese banks continued lending to unviable firms to conceal problem loans. We revisit Japan’s experience and propose a new mechanism via which banks’ loan-evergreening policy undermines allocative efficiency across industries by focusing on construction and real estate loans. Namely, banks’ continuing support for construction and real estate firms encourages labor hoarding in unviable construction projects. Since construction projects predominantly use low-skilled workers, banks’ loan-evergreening policy in these troubled sectors may depress other low-skilled industries. Based on the industry-level data in each of Japan’s 47 prefectures from 1992 to 1996, we document empirical facts consistent with this hypothesis. On average, low-skilled industries experienced disproportionately slower output and employment growth and more sluggish growth in the number of new establishments in prefectures where the share of bank loans to local construction/real estate sectors increased more after construction boom ended.

건설자금대출 보증과 공사비 위험관리

This paper discusses risk management in construction loan guarantee. Developers tend to finance their construction cost with loans and most lenders in Korea ask developers to provide them with a guarantee letter. The guarantee provider needs to implement and enhance skills of risk management associated with development projects. This paper classifies risks associated with development cost from the perspective of guarantee provider and the paper examines strategies of risk management associated in particular with construction cost.

Bank Loan Monitoring, Distance, and Delegation

Using a proprietary transaction-level database of nearly 30,000 multiple-draw construction loans and their on-site inspection reports, we empirically examine the relationship between geographic distance and bank information acquisition over the course of the loans (i.e., monitoring). We find that projects farther from the nearest bank branch are more intensely monitored by bank-contracted, third-party inspectors (delegated monitors) and that projects farther from these inspectors receive less intense monitoring, potentially because inspectors face distance-related frictions. These results are consistent with the prediction that distance increases informational frictions but also suggest that banks may offset these frictions by delegating monitoring to closer inspectors.

Feasibility of North Tangerang Toll Road Construction

In order for an investment to be efficient, an economic and financial feasibility study is needed so that all parties involved, the government, banks as lenders and investors (Toll Road Business Entities) understand the risks that will occur. An economic study is needed to know the magnitude of the benefits of this project for the surrounding community, while a financial study is needed to find out whether this project is feasible to build in economic or finance. This thesis will examine the economic and financial feasibility analysis of this toll road project, from existing secondary data, the feasibility study is calculated using the criteria of IRR (Internal Rate of Return), NPV (Net Present Value), B/C ratio and PP (Payback Period). Feasibility calculation will be greatly influenced by several variables, for sensitivity and risk analysis on investment feasibility the variables that are taken into account are initial construction costs, traffic volume and loan interest.
 From the results of the economic feasibility analysis, it was obtained that EIRR = 17.87% > 6.75 % ID Govt. Yield 10 yr-2021, NPV (MARR 6.75%) = Rp.27,874,162 (million) and B/C ratio = 5.46 > 1, while financial feasibility is obtained FIRR = 13.63% > MARR 10%, NPV = Rp. 3,594,555. (millions), B/C ratio = 1.58 > 1, Payback Period = 7.92 and Total operational loans = Rp. 5,298,231 (million) for 11 years. The variables that greatly influence the IRR are the variable initial construction costs of -72.3%, then traffic volume of 48.5% and loan interest -15.5%.
 Based on the results of the study and analysis, it can be said that the North Tangerang toll road project is economically feasible and financially feasible, however, in its implementation, it is necessary to control the cost and time plans as well as the quality of implementation, so that the feasibility calculation will not change much from what has been planned.

A study on consumer awareness towards home first finance product mortgage loan & construction loan

A study on consumer awareness towards home first finance product mortgage loan & construction loan

Housing Price Risks and Lending Behavior of Banks before and after the 2008 Financial Crisis

As a large volatility in asset values can negatively affect collateral values and increase the likelihood of defaults by loan borrowers, facing high price risks in real-estate markets, banks need to lower risk exposures and reduce loans. However, our analysis of US commercial banks shows that banks in Metropolitan Statistical Areas (MSAs) with higher housing price risks make more real estate loans, especially to construction loans before the 2008 financial crisis. After the crisis, banks have changed such lending behaviors and made less loans. While increasing their loans in markets with high risks, banks do not prepare for more reserves for loan losses in the pre-crisis period. Our results suggest that banks with higher housing price risks have taken excessive risks before the 2008 crisis.

Which Sector-Based Bank Lending Facilities can Contribute to Long-Term Economic Growth? : Indonesian Study

Knowing which sector credit facilities can contribute to increasing economic growth in the long term in Indonesia, is the main objective of the research. This research uses secondary data as quarterly data from 2010Q1 to 2019Q4. Using the VECM approach to identify long-term effects, equipped with structural analysis to determine the response to shocks as well as the resulting contribution. Overall sectoral bank credit facilities have a significant long-term impact on GDP, it was found, though of a different nature. The positive nature of credit facilities for the agricultural sector, wholesale and retail trade sector, and the transport, warehousing and communications sectors, while credit for manufacturing, construction, and financial intermediaries had the opposite impact. A credit shock for construction and financial intermediary sector loans responded positively in the long and short term, while credit for the manufacturing sector received the largest negative response. The largest contribution to economic growth came from manufacturing sector credit, financial intermediary sector credit, agricultural sector credit, and lastly, construction sector credit. Researchers suggest increasing credit allocations to agribusiness, discount and retail exchange, and the transport and communications sectors to meet long-term goals, while in the short term, maximizing the allocation of credit between the manufacturing sector, the financial intermediaries sector, and the transport and communications sector.

The relationship between banks’ credit quality, credit growth and social capital: evidence from Turkish banking sector

ABSTRACT The aim of this study is to empirically examine the relationship between credit growth, credit quality and social capital of all commercial banks operating in Turkey for a period of twelve years between 2007 and 2018 on the basis of 81 provinces. In order to measure social capital on a provincial basis, the independent variable SC1 was obtained by applying principal component analysis to the variables consisting of 2 network and 2 norm variables. In addition, province-based organ donation rate was used as an alternative social capital variable. Changes in Total Loans (ΔTL), Changes in Real Estate Loans (ΔREL), Changes in Commercial and Industrial Loans (ΔCIL), Changes in Construction Loans (ΔCL), Changes in Non-Performing Loans (ΔNPL), Ratio of Non-Performing Loans to Total Loans (NPL/TL) and Ratio of Non-Performing Loans to Total Assets (NPL/TA) were determined as the dependent variable. The relationship between the level of social capital (SC1) and seven dependent variables on a provincial basis in Turkey was analyzed and measured using panel data techniques. The results of the analysis show that the relationship between the social capital level of the provinces, credit growth and non-performing loans are negative and significant. The results of the study show that the level of social capital is important and decisive in terms of credit growth and credit risk of banks.

House prices and bank loan portfolios in an emerging market: The role of bank ownership

Evidence from developed markets suggests that banks increase their mortgage loans with house price appreciation, but the findings for commercial and consumer loans are mixed. How do banks change their loan allocation with the appreciation of house prices in an emerging market? Do state-owned banks behave differently? We answer these questions using province-level data from Turkey over 2007Q4–2015Q2 and unavailable land share and mortgage rate as instruments for house price growth. We find that banks substitute away from commercial and industrial loans to mortgage, consumer, and construction loans as house prices appreciate. In addition, state-owned banks misallocate their loans by reducing their commercial and agricultural lending more than private banks. Our results imply that the policymakers should consider the adverse effects of house price appreciation due to the crowding-out of commercial loans, especially by state-owned banks.

BANK LENDING OF COMMERCIAL REAL ESTATE

Background. Banks’ proposals of loans for commercial real estate services have some differences in standard and non-standard terms of their provision. Instead, most clients focus only on standard loan terms and only some of them on non-standard ones. A comprehensive approach to the simultaneous consideration of standard and non-standard conditions for obtaining a loan for commercial real estate has not been developed in modern theory and practice of banking, which should be the basic basis for the borrower’s decision in choosing of the lending bank. The aim of the article is to identify current trends in the development of bank lending for commercial real estate in Ukraine, as well as the economic justification of the borrower’s choice of bank in the process of making a decision to obtain a loan. Materials and methods. Method of generalization and historical method were applied in the study of trends in lending for the acquisition, construction, repair, reconstruction of commercial real estate; methods of analysis and synthesis were used in the diagnosis of standard and non-standard conditions of credit servicing of commercial real estate. The authors provide an analysis ofthe choice of the bank to obtain a loan based on an integrated assessment of its attractiveness to the client using system approach. Results. A methodical approach to the integrated assessment of the economic attracttiveness of a bank loan for commercial real estate services has been developed. It is based on the Pareto principle, according to which standard lending conditions are taken into account in 80% and 20% is non-standard. This methodological approach allows the borrower to make an informed management decision on the correct choice of the lending bank. Conclusion. Loans for commercial real estate services, except the warehouse real estate sector, have decreased due to the COVID-19 pandemic. Demand for construction loans and repair of warehouses remained relatively stable. The practical approbation of the offered methodical approach of a complex estimation of credit offers of the most active Ukrainian banks on an example of the enterprise which planned to receive the credit for repair of the warehouse real estate is carried out. The choice of the creditor bank is substantiated according to the calculations results. Keywords: pandemic, banks, commercial real estate, lending, grant element, Pareto principle, standard and non-standard lending conditions, integrated assessment.

Economic Fluctuation, Local Government Bond Risk and Risk-Taking of City Commercial Banks

Countercyclical fiscal regulation can mitigate economic risk, but this is bound to increase the scale of local government debt during an economic downturn, and then spread risk to the banking sector, forming potential financial instability factors. We extracted the three most important variables in this process: economic fluctuation, local debt risk and bank risk-taking to build an econometric model and found that: (1) both economic fluctuations and local government bond risks have a significant impact on bank risk-taking, which is negatively correlated with local economic growth, while the increase of local government bond risks tends to increase bank risk-taking in the long run; (2) the impact of local government debt risk significantly increases the loans of city commercial banks flowing into the construction industry. Therefore, the impact of local government bond risk on city commercial banks is concentrated in the impact on their construction loans. This study has an important reference value for timely and moderate countercyclical regulation, preventing local debt risk from spreading to banks, constructing a sustainable local government−bank ecology, and promoting sustainable economic development.

The Analysis of Property Loans Development in Indonesia

The property sector in Indonesia has an essential role in driving the national economy. The bank lending development to the property sector in April 2019 did not show significant growth and stagnant. This study analyzes the growth trend of property loans in Indonesia and estimates the factors that affect the number of housing loans (KPR) and apartment ownership loans (KPA) in Indonesia. The data used in this study are secondary data and time series. The analytical tools used in this research are trend and regression. The results showed that from 2020 to 2025, the property loan growth in Indonesia will still be sluggish. The condition is identified by construction loan which is expected to grow even though the increase is not too significant, real estate loan is still fluctuating, this is because in 2019 there was a decline in real estate loan growth of almost 50 percent from the previous year, and KPA and KPR are estimated to decline even though in nominal terms the number of KPR and KPA increases. The population number variable has a positive and significant effect on the number of KPR and KPA in Indonesia. The more the population, the more the number of KPR and KPA will increase. Meanwhile, the variables of economic growth and inflation in this study did not significantly affect the number of KPR and KPA.

Determinants of Losses on Construction Loans: Bad Loans, Bad Banks, or Bad Markets?

Determinants of Losses on Construction Loans: Bad Loans, Bad Banks, or Bad Markets?

Linear Programming and Its Application Techniques in Optimizing Portfolio Selection of a Firm

Optimization techniques have been used in this paper to obtain an optimal investment in a selected portfolio that gives maximum returns with minimal inputs based on the secondary data supplied by a particular firm that is examined. Sensitivity analysis is done to ascertain the robustness of the resulting model towards the changes in input parameters to determine a redundant constraint using linear programming. The challenge of determining the available funds and allocating each component of the portfolio to maximize returns and minimize inputs by portfolio holders and managers who are the major decision-makers in allocating their resources cannot be quantified. This optimization technique is used to obtain an optimal investment portfolio including financial risks of a firm with disposable of $15,000,000.00 invested in crude oil, mortgage securities, cash crop, certificate of deposit, fixed deposit, treasury bills, and construction loans. The model is a single-objective model that maximizes the return on the portfolio as the interests on the original data reduces by 5%; then, the return on investments also reduced by almost 15%, with the quantum of money on treasury bills and construction loans posing a significant reduction for the maximum return. The investment in the other options saw a slight decrease. Also, as the interest rates of the original data increase by 5%, the return on investments also grows by almost 17% while the quantum of money on the treasury bills and construction loans increases, and the quantum of money on the other options experienced a decrease except for mortgage securities which recorded a slight increase.

Population Growth, Building, and Banking

US counties with higher population growth prior to 2000, experienced higher growth in residential construction in the run-up to the financial crisis of 2007-08. Banks operating in these counties shifted their loan portfolios more aggressively towards construction loans and away from other non-real estate loans. Although shifts towards construction lending that followed local construction activity did not lead to higher loan default rates, more aggressive shifts did.

Understanding the Exposure at Default Risk of Commercial Real Estate Construction and Land Development Loans

We study and model the determinants of exposure at default (EAD) for large U.S. construction and land development loans from 2010 to 2017. EAD is an important component of credit risk, and commercial real estate (CRE) construction loans are more risky than income producing loans. This is the first study modeling the EAD of construction loans. The underlying EAD data come from a large, confidential supervisory dataset used in the U.S. Federal Reserve’s annual Comprehensive Capital Assessment Review (CCAR) stress tests. EAD reflects the relative bargaining ability and information sets of banks and obligors. We construct OLS and Tobit regression models, as well as several other machine-learning models, of EAD conversion measures, using a four-quarter horizon. The popular LEQ and CCF conversion measure is unstable, so we focus on EADF and AUF measures. Property type, the lagged utilization rate and loan size are important drivers of EAD. Changing local and national economic conditions also matter, so EAD is sensitive to macro-economic conditions. Even though default and EAD risk are negatively correlated, a conservative assumption is that all undrawn construction commitments will be fully drawn in default.

Banks’ loan growth, loan quality, and social capital

Using a sample of public and private banks in the U.S. and two measures of social capital, we study how social capital relates to banks’ loan expansion strategies and loan quality. A higher loan growth rate in the banking industry usually implies lower loan standards and a higher percentage of future nonperforming loans. We find that social capital is negatively associated with banks’ loan expansion strategy (proxied by banks’ loan growth). We also document that social capital is negatively associated with growth in risky loans (proxied by real estate loans, construction loans, and commercial and industrial loans). Finally, we find that social capital is negatively associated with bank loan loss provisions, change in loan loss allowance, and change in nonperforming loans. These findings are consistent with the notion that social capital is associated with higher loan quality.

OPTIMALIZATION OF SOCIAL SECURITY ADMINISTRATION (BPJS KETENAGAKERJAAN) TO ACCELARATE THE ACCESSABILITY OF HOUSING FACILITIES FOR LOW-INCOME PEOPLE ACCELERATING HOUSING FOR LOW INCOME PEOPLE (MBR)

Housing for low-income people has become a problem that until now cannot be solved completely. Various programs have been launched but the number of backlog of housing continues to grow. One of the parties who take in-charge in this problem settlement is the BPJS Ketenagakerjaan program that launches additional programs related to the housing. The results of this study show the role of BPJS Ketenagakerjaan in Accelerating the Accessibility of Housing Facilities for Low-Income People with several programs such as down-payment facilities (PUMP), home renovation loans (PRP) and real estate construction loans. These programs will assist the government to settle this housing deficit although there has not been any prevailing rule and regulation which also has not reached entire nation of Indonesia due to it is limited to the members of BPJS Ketenagakerjaan. Therefore it is required to optimize the role of BPJS Ketenagakaerjaan to settle such housing deficit by understanding the prevailing rules and regulation and some related facilities including the application of leasing. The obstacle which inhibited by the BI Checking that can be solved by set up the new scheme to the potential debtors that so that they can as soon as possible live in their dream houses though still own difficulties in credit rate/BI-Checking. Then, as they change their credit rate they may purchase the house in the form of mortgage based on their capacity of income. To execute this, strong rules and regulation from the government as basis of the role of BPJS Ketenagakerjaan or “other LKNB”can also be active in this housing deficit problem with leasing scheme.