Corporate Lending Research Articles

ACTUAL TRENDS IN BANK LENDING

The article analyzes the key aspects of commercial bank lending operations in the post-crisis banking system recovery phase. In order to ensure stable economic growth, it is important to help increase lending to the real sector of the economy, since by increasing the volume of granted loans by 10%, experts estimate that it is possible to get 2% of GDP growth. Therefore, it is important and at the same time difficult to ensure an active resumption of corporate lending. The strategic goal of the National Bank of Ukraine and the Government is to restore real sector lending in the near future and will be a major factor in economic growth. The purpose of the article is to conduct a comprehensive analysis of the field of bank lending to identify major weaknesses, obstacles that do not allow to achieve the desired economic effect. A structural analysis of the active operations of commercial banks was conducted to identify major obstacles and identify potential drivers of credit recovery. It was revealed that during the period under review for 2016-2019, assets grew due to the following factors: exchange rate revaluation of bank balance sheets and growth in consumer lending. In the structure of active operations, lending prevails, which is a reflection of the business model chosen by banks. The share of loans granted on bank balances ranges from 56 to 64% and reflects a downward trend. If you look at the structure of the loan portfolio by maturity, it should be noted that short-term loans predominate. This situation is caused by the fact that consumer lending is growing rapidly, and in this segment loans are granted for a period of mostly up to 1 year. In recent years, there has been a trend towards an increase in the volume of loans to indivi­duals. As of 01.09.2019 is 20.92%. This structure of the loan portfolio is not yet a threat to systemic stability, but banks should carefully and conservatively reserve for such loans. The main factor contributing to economic growth is the resumption of lending to the real economy. The current situation in this segment is such that it is not possible to achieve this quickly. The main disadvantages that prevent this are the following. A significant proportion of non-performing loans on banks' balance sheets. Absence of sufficient quality solvent borrowers. Unstable macroeconomic situation. Insufficient protection of the rights of creditors, borrowers. Therefore, in order to achieve the strategic goal of securing rapid economic growth, these factors need to be explored in detail to identify possible ways of leveling them. Keywords : bank lending, loan portfolio, consumer lending, corporate lending.

Corporate lending and interest rate: Determining exogenous factors

Corporate lending and interest rate: Determining exogenous factors

Bankruptcy Risk Assessment in Corporate Lending Based on Hybrid Neural Networks and Fuzzy Models

The purpose of this article is the presentation of a novel and unconventional algorithm for bankruptcy risk management in banking technologies catered towards lending to legal entities (enterprises and companies). The challenges of assessing risk in this area primarily relate to the reduction of type I and type II errors when making decisions on the terms of lending (i.e. loan amounts and repayment parameters) on the ostensibly objective basis of a borrower’s creditworthiness assessment.
 
 As such, it is necessary to use a unified procedure to select appropriate economic indicators for any bankruptcy model in order to reduce the high degree of uncertainty and noisiness of publicly available databases, and to take into consideration the specific character of knowledge-intensive, high-tech and “green” manufacturing. In order to approach this challenge, a mix of various methods is presented in this article, including credit scoring, neural simulation, a fuzzy model description, fuzzy inference rules, and a fuzzy Pospelov scale.
 
 The research results are as follows: the authors have developed an unconventional algorithm for diagnosing corporate bankruptcy stages. This algorithm is based on the application of a system-wide law relating to decreases in integrated system entropy, contrasted with the sum of entropies of the relevant collated subsystems. This algorithm has been tested on a series of experimental observations of 30 agricultural enterprises in the Sterlitamak District of the Republic of Bashkortostan. We have thusly assessed the financial condition of borrowing companies, while controlling for the probability of a wide range of indicators.
 
 Using this algorithm, the authors decided not to apply the rigorous requirements of the classical ‘least squares’ method used in regression analyses. A switch to a neural simulation approach in this algorithm necessitated an evaluation of the adequacy of the obtained model on the basis of a Bayesian approach. On the basis of this research, the authors propose that a regularisation of bankruptcy models has been achieved.

Banking book collateral transformation

As banks strive to find ways to increase profits against headwinds that include continued low interest rates and intensive regulation, they are compelled to look within all areas of the organisation for efficiencies that result in cost savings. Fierce competition from traditional competitors and the emergence of financial technology (Fin-Tech) in traditional banking areas are further pushing organisations to reduce costs, eliminate credit risk loses and optimise capital utilisation. For too long, commercial and corporate lending (‘banking book’) businesses have been hampered by manual processes, fragmented systems and multiple data sources. As a result, banking book lending is exposed to increased operational and credit risk and inefficient business decision making — impeding their ability to scale efficiently and therefore eroding profits. Loan collateral mitigates credit risk while also providing the opportunity to mitigate pressure on banking book performance through efficient use. To achieve these goals, however, automated and holistic collateral management operations are mandatory: to, specifically, reduce counterparty and operational risk; eliminate manual processes; improve capital efficiency and provide the accurate datasets required for capital reporting and management. Transformation to an automated and holistic banking book collateral management operation also enables the deployment of digital technologies including machine learning (artificial intelligence) and distributed ledger technology, adding further to the potential to improve risk management, operational efficiency and scalability across the banking book.

Should the CCyB Be Enhanced with a Sectoral Dimension?

The paper investigates whether there is sufficient empirical support in Italy for the introduction of a sectoral countercyclical capital buffer (CCyB) in the macroprudential framework. We study the sectoral decomposition of the credit-to-GDP gap over the period 1990Q1-2017Q2. Overall, our results suggests that a sectoral CCyB could be a useful addition to the macroprudential framework as both the timing for activation and the size of the capital buffer can differ when accounting for the sectoral dimension of the credit-to-GDP gap. We find that the synchronicity of sectoral credit cycles decreases as we move from a two-sector to a six-sector decomposition. Moreover, the contribution of sectoral cycles to systemic stress, as measured by the system-wide new bad debt rate, as well as the prudential requirements associated with their risk exposure differ quite significantly. While exuberance in the non-real-estate related segment of corporate lending is usually followed by a surge in systemic stress, exuberance in the real-estate related segment of business lending does not.

Security Audit on Loan Debit Network Corporation System Using Cobit 5 and ISO 27001: 2013

Stakeholders in a company have a right knowing about optimizing information security management. It can affect a company’s performances and reputation. Information is the biggest business driver in an organization or company. This research aims to measure the capability of the company which is implemented information security governance that impacts on enterprise risk. The Loan Debit Network Corporation system is the main system that supports the company’s business process for corporate lending transactions management. The capability level measurement is based on COBIT 5.0 for Information security and ISO 27001: 2013 Guidelines as a value against the Information Security Governance component rating. It starts with aligning organizational goals from COBIT 5.0 perspectives to obtain five COBIT 5.0 IT processes. The current capability is at level 2.5. Improvement recommendation from level 2.8 to level 3 refers to best practice recommended by COBIT 5.0 for Information Security.

The conflict of interests of economic entities and to minimize its consequences by reducing the risks of corporate lending

This article is devoted to the construction of a risk-oriented model of credit risk reduction in the course of the life cycle of the loan in the provision of a commercial Bank loan to a corporate client. The work demonstrates, firstly, the need to introduce innovative solutions that reduce the risk of non-repayment of the loan by the borrower, and secondly — the mechanism of using such elements of the model as a new system of limits and risk profiles, the Institute of underwriting, IRB-approach to determine the risk category of the application and the body authorized to make.

CLO Market and Corporate Lending

Securitization by collateralized loan obligations (CLOs) is a key source of capital for the corporate loan market. We investigate whether access to CLO market has implications for lenders' ability to overcome an idiosyncratic shock. We find that WorldCom's lenders with a direct access to the CLO market increased the origination of facilities that are securitizable (Term B) by 11% compared to the other WorldCom lenders when they are shocked by WorldCom’s collapse. Together with the evidence of an increase in CLO issuance after the shock, our results suggest that securitization is actively used for lenders' risk management. The results hold in various robustness tests, including a triple-differences approach.

Lending Cycles and Real Outcomes: Costs of Political Misalignment

We use data on credit in Turkey to document a strong political lending cycle. State-owned banks systematically adjust their lending around local elections compared with private banks in the same province. There is considerable tactical redistribution: state-owned banks increase credit in politically competitive provinces which have an incumbent mayor aligned with the ruling party, but reduce it in similar provinces with an incumbent mayor from the opposition parties. This effect only exists in corporate lending as opposed to consumer loans, suggesting that tactical redistribution targets job creation to increase electoral success. Political lending influences real outcomes as credit-constrained opposition areas suffer drops in employment and firm sales. There is substantial misallocation of financial resources as credit constraints most affect provinces and industries with high initial efficiency.

The Pass-Through of Bank Capital Requirements to Corporate Lending Spreads

This paper studies the impact of higher bank capital requirements on corporate lending spreads. We conduct an empirical analysis using granular bank- and loan-level data for Switzerland. Overall, we find a positive relationship between capital ratios, actual and required, and lending spreads. The relationship is statistically significant but economically small. According to our results, a one-percentage point increase of capital ratios (risk- weighted) leads to an increase in lending spreads between 0 and 5 basis points. This figure is higher - between 5 and 20 basis points - for unweighted capital ratios (leverage ratios), partly but not only reflecting scaling effects. We find support in favor of gradual phasing-in of new requirements as banks with capital shortfalls relative to their short-run regulatory requirements charge higher spreads relative to institutions with surpluses while the effects are weaker for look-through capital shortfalls. Holding additional capital when requirements are raised is associated with lower spreads vis-a-vis peers.

Corporate Lending in Overdraft Mode: Determination of Limit and Criteria for Economic Justification

For a lending institution, overdrafts to corporate customers are attractive in terms of maintaining bank liquidity and increasing revenues from operating activities. The introduction of this credit service and expansion of its application does not require additional capital investments from the bank, but at the same time enhances its competitive position, since this service can not be provided by non-bank financial services operators, but exclusively by banks, because they act as financial intermediaries and settlement centers. When lending in overdraft mode, the bank has two specific tasks - determining the overdraft limit and assessing the economic soundness of lending in this mode. The problem of the current moment is that the lending banks solve these tasks, based on the administrative approach, often subjective, which does not have a unified economic justification, characterized by the length of the decision-making process for the loan application. This problem does not allow the bank to put on stream making decisions on lending in overdraft mode and thus, to give this service speed and mass character. As a solution to this problem, the article proposes a unified methodology for determining the limit and criteria for the correspondence of the corporate client's cash flow to the overdraft regime, which allows the bank to standardize the decision-making process for applications for lending in the form of an overdraft.

Banks in the Context of “New Normality” and the Need to Restructure Business Processes

The reduction by the Bank of Russia of the key rate as a tool for quantitative monetary easing leads to stagnation in the banking sector profitability. The purpose of the research was to disclose the importance of the mainstreaming factors of the banking profits formation. It is shown that the reasons that led to the financial result in 2017 had an unstable, temporary nature. It is revealed that the effect of the bank margin reduction under the “new normality” conditions can be overcome only by increased lending. In the situation when the real quality of a bank loan portfolio does not correspond to official data the introduction of risk-oriented business models into practice is essential for the growth of corporate lending. A progressive model of the loan life cycle is described. It is concluded that banks should use the model more extensively in providing loans to corporate borrowers in order to reduce risks, accelerate the loan application procedure and improve the profitability and competitiveness of credit institutions.

Credit Markets Around the World, 1910-2014

How have credit markets evolved in the long-run around the world? I present evidence based on a novel sectorally disaggregated dataset on credit to the private sector for 120 countries for 1940-2014, as well as new series on total credit going back to 1910. Over the last 50 years, household credit has risen dramatically not only in advanced but also emerging economies. Mortgage lending only accounts for part of the story: particularly in developing countries, consumer credit accounts for much of this growth. I show that corporate lending has essentially stalled relative to GDP since around 1980, which is not explained by the development of global bond markets, cross-border lending, or trade credit. While the main drivers are country-specific, the rise of household credit correlates with financial deregulation, information sharing institutions, demographic shifts, inequality, and legal frameworks.

Technology Strategy-Innovating for Growth of Citibank

IntroductionANZ is an international banking and financial services organization based in Melbourne, Australia. It builds itself through rapid market expansion and acquisitions over the years to become one of the AsiaPacific Region's largest financial institutions. ANZ takes pride in being -a different addressing more active roles in the community and the environment it serves. To date, ANZ Group has operations in 32 countries and serves more than eight million customers worldwide, with principal markets in Australia and New Zealand and the growing markets of the Asia Pacific Region, Middle East, Europe and the US(Marketline, 2013).Its unique portfolio of specialized businesses offers a full range of financial products and services, including mortgages, credit cards, corporate lending, asset finance, and more sophisticated investment banking products. ANZ has positioned itself as one of the leaders in technological advancements and innovations in the banking industry. Its technology vision is -Automated, seamless, straight -through processing, E-banking with a human face. ANZ technology infrastructure enables complex integration like CRM system to operate effectively.ANZ's CRM SystemANZ's CRM system integrates various business units, processes, and managerial skills. Its CRM system is one tool to maintain a competitive position in the market especially in Internet Banking services. CRM system enables ANZ's Internet Banking to become one of core strengths and expand its market share since it started operating in 2010.CRM system connects ANZ's business partners. The connectivity enables a systematic operation between the front office workers and support office workers. Sharing of information and knowledge between all business units facilitates department to department communication and e-customer service. On e-customer service, a phone-based help desk is open 24/7. ANZ keeps a large database of its customers and uses this database to develop marketing opportunities.CRM Works in a Loan ApplicationAt ANZ, the integration of front office and back office functions enables quick turnaround time for customers. On-line processing of loans is one of the ways that ANZ sustains its competitive position. Personal loan applications are completed on-line. A loan application made at any front office is processed at the back office subsidiary. Background checks on customers via the internet are completed with the Credit Bureau to avoid delays with loans processing(ANZ Bank, 2013).CRM is also related to knowledge management which enables effective problems solving and decision making. It allows loan officers to identify potential defaulting and high risk customers and do customer profiling which in turn increases staff productivity. Employees are able to close more deals with increased customer satisfaction, loyalty and retention.An effective collaboration and management of people, processes, culture, and working environment is essential to implementing a successful CRM system. The home loan case study demonstrates how the integrated CRM system works in ANZ. Effectiveness of the process reflects participatory interactions among business units in ANZ in carrying out a single task (Deogratias, 2012).CRM and Knowledge Based ManagementEnterprise Knowledge Portals (EKP) are the doorways into many knowledge management systems. ANZ etransformation vision directs the bank in a very important route using its technology capabilities to offer employees and other users' better chance to create and share information. This can be done through its intranet server where employees exchange and share information. In Australia and New Zealand, ANZ has recently launched new products like Money Manager, a money managing program that uses social networking sites such facebook, as a means whereby clients can share information with the bank or others.Digital ANZ BankANZ has introduced a major investment program. …

Corporate Lending: Market Exhibits Buoyancy

Corporate lending market exhibits buoyancy in early 2018. Nominal volumes of new loans issued to corporate borrowers is close to pre-crisis maximum. However, corporate lending remains low against economic activity. The quality of credit portfolios can not be assessed positively yet due to the resolution of major banks.

Lending Cycles and Real Outcomes: Costs of Political Misalignment

We use data on the universe of credit in Turkey to document a strong political lending cycle. State-owned banks systematically adjust their lending around local elections compared with private banks in the same province. There is considerable tactical redistribution: state-owned banks increase credit in politically competitive provinces which have an incumbent mayor aligned with the ruling party, but reduce it in similar provinces with an incumbent mayor from the opposition parties. This effect only exists in corporate lending as opposed to consumer loans, suggesting that tactical redistribution targets job creation to increase electoral success. Political lending influences real outcomes as credit-constrained opposition areas suffer drops in employment and firm sales. There is substantial misallocation of financial resources as credit constraints most affect provinces and industries with high initial efficiency.

Credit Rating Migration Risk and Interconnectedness in a Corporate Lending Network

Credit Rating Migration Risk and Interconnectedness in a Corporate Lending Network

Financial Repression in the European Sovereign Debt Crisis*

At the end of 2013, the share of government debt held by the domestic banking sectors of Eurozone countries was more than twice the amount held in 2007. We show that increased domestic government bond holdings generated a crowding out of corporate lending. We find that loan supply was depressed by these domestic sovereign bonds only during the crisis period (2010-11). The pattern also holds across firms with different relationship banks within a given countries. These findings suggest that sovereign bond holdings negatively impact private capital formation. We show that direct government ownership, as well as government influence through banks' boards of directors, are among the channels used to influence banks.

Trust or Opportunity? Managing Corporate Lending Networks if Institutions Are Weak

That social capital matters in corporate lending relations is uncontested. While the literature has largely focused on the quality of dyadic firm-bank ties in explaining corporate credit access, we suggest a supply side perspective of lending networks surrounding individual corporations. Our theory predicts that corporations benefit from network closure in their lending networks, but less so, if institutional conditions surrounding the firm guarantee the predictable enforcement of credit contracts. We use a panel of 515 corporations listed on China’s Stock Exchanges holding a total of 7009 major bank loans granted by 183 distinct banks during the period from 2007 to 2012 to test our theoretical framework. Our findings support the hypothesized positive effect of closure. Our findings also robustly confirm that closure offers fewer advantages if the institutional environment provides credible mechanisms helping to produce institutionalized trust between contract partners. These findings are robust to various specifications. More generally our findings contribute to the relational lending literature as well as an emerging literature highlighting how the interplay between network structures and formal institutions shapes individual and corporate strategies.

De-leveraging or de-risking? How banks cope with loss

Using detailed bank balance sheet data obtained under the United States? stress testing programs we examine how a shock to banks? net worth affects their portfolio decisions. We focus on the supply of credit (the bank lending channel) and the ultimate effect on borrowers (the credit channel), but also examine how the shock affects banks? overall risk profile and security holdings. Our shock is derived from variation across banks in their loan exposure to industries adversely affected by the precipitous oil price declines of 2014. For corporate lending, we find significant evidence of a bank lending channel. Banks more exposed to the shock appear to have tightened credit as evidenced by tightening lending standards and reductions in lending to firms. We do not find significant evidence of a credit channel. The effect of the tightening of credit on firms? scale seems minimal. This appears to be because firms are able to substitute to alternative financing from other banks or by drawing down pre-existing lines of credit. In terms of residential lending, the story is more subtle. Affected banks tightened credit on mortgages that they would ultimately hold in their portfolio but appear to have expanded credit for those mortgages that would predominantly be securitized. This tendency is reflected in a contemporaneous expansion in their holdings of MBS after the shock. While affected banks substantially de-risked their portfolios through adjusting their residential lending in this way, we again find that the ultimate effect on borrowers was minimal.