Credit Allocation Research Articles

Credit Growth and Risk Management in Indian Banks: Analysis Through Sectoral Deployment

This research paper explores the dynamics of sectoral credit deployment and its impact on risk management within the Indian banking sector over three fiscal years (2021-2023). Utilizing data from the Reserve Bank of India's annual reports, the study delves into the growth patterns of credit allocation to agriculture, industry, services, and personal loans, and assesses corresponding risk metrics such as the Gross Non-Performing Assets (NPA) ratio, Provision Coverage Ratio (PCR), and Capital Adequacy Ratio (CRAR). Descriptive statistics, correlation analysis, and regression modelling were employed to identify relationships and impacts. The findings reveal substantial credit growth in the services and personal loan sectors, accompanied by significant improvements in risk management indicators, including a marked reduction in the Gross NPA ratio and enhanced Provision Coverage Ratios. These trends highlight the sector’s increasing resilience and risk preparedness, reflecting broader shifts towards a consumer-driven financial landscape. The paper discusses the implications of these findings for banking stability and economic policy, emphasizing the need for nuanced regulatory frameworks to manage sector-specific risks. Future research could extend this analysis to predict long-term impacts of credit expansion on financial stability using advanced econometric models.

The impacts of the Ethiopian developmental state model on the competition, efficiency and profitability of banks

PurposeThis study examines the impacts of the Ethiopian developmental state model on the competition, efficiency and profitability of banks.Design/methodology/approachThe competition, efficiency and profitability of the Ethiopian bank are measured using Panzar Rose, data envelopment analysis and financial ratio. Fixed-effect panel regression methods are applied to test the direction and strength of association between the Ethiopian developmental state model and the competition, efficiency and profitability of the country's banks while controlling bank-specific market structure and macroeconomic factors.FindingsThe Ethiopian developmental state model embeds the state-directed financial system, which affects the banking industry using a range of credit allocation instruments. Of which, directed credit schemes, interest rate control and the lack of financial freedom reduce the competition and efficiency of banks. The National Bank of Ethiopia (NBE) advances to the government and the sale of Treasury bills to a captive market enhances banking competition while negatively affecting banking efficiency. Interest rate control and the lack of financial freedom lower banking profitability. Unexpectedly, directed credit schemes improve banking profitability.Research limitations/implicationsAs with any study, this one has limitations. The intra-period comparison of efficiency is based on balanced data. Future studies can use methods that can measure the efficiency of banks using unbalanced data. The computation of the yearly H-statistic is constrained by the small sample size. The use of high-frequency data for measuring competition can provide us with better insights into banking competition in Ethiopia. Furthermore, there are a number of methods for measuring banking competition, efficiency and profitability with different assumptions. Approaching the subject of this study by applying different methods will offer different insights.Practical implicationsThe contributions of this study to practice are at two levels. First, at the policy level, it enhances our understanding of the impacts of developmental state model policies, as implemented in Ethiopia, on the banking industry and therefore provides suggestions to policymakers to reform the sector's policies. Second, it offers input to the management of banks regarding the factors that impact the industry.Originality/valueThe banking industry is often studied in the context of financial liberalisation. The originality of this study lies in investigating how the competition, efficiency and profitability of banks are affected when operating in the context of significant state interventions in the industry.

Financial Development and Income Inequality: The Case of Ecuador

Financial development, characterized by the growth and sophistication of the financial system, is crucial for the global economy, since it facilitates investment, savings and the efficient allocation of resources, in addition to contributing to the reduction of poverty and inequality by allowing, broader access to financial services. Ecuador has experienced significant changes in its financial system during recent decades, such as dollarization, liberalization, digitalization, diversification of services, and strengthening of regulation and supervision. The research focuses on establishing the influence of financial development on income inequality. The autoregressive distribution of lags (ARDL) methodology was used with the purpose of identifying short- and long-term relationships. The variables included are the Gini index, financial development, financial instability, public social spending, and final consumption spending by resident households, trade openness and gross fixed capital formation. After applying the ARDL model, the main results show that credit allocation to the private sector plays a significant role in reducing income inequality, and its effect intensifies over time. Received: 22 October 2023 / Accepted: 9 April 2024 / Published: 5 May 2024

MANDATORY CREDIT ALLOCATION AND GOVERNMENT GUARANTEE IN THE PHILIPPINES

Mandatory credit allocation is a policy intervention to pressure banks to lend to certain sectors that otherwise unfettered finance would not give access to. While some would argue that mandatory credit allocation results in sub-optimal allocation of resources, it has been shown that such intervention results is socially desirable outcome. However, mandatory credit allocation should not be the responsibility of banks only, it must be supported with government guarantees. In the Philippines, there are three sectors in which mandatory credit allocation is given namely the agriculture sector, the micro, small and medium enterprises or MSME sector, and enterprises involved in innovation. In agriculture, the credit allocation is too big and therefore should be reviewed, in MSME too small and therefore should also be reviewed, and in innovation difficult to identify and impractical to implement. In all of these, the banks are left to shoulder the respective mission with practically no government support. Banks either comply or pay the penalty.

Credit allocation to businesses in Italy amid the Covid-19 crisis

This note investigates the credit allocation process to businesses in Italy during the Covid-19 crisis, utilizing methodologies from Herrera et al. (2011) for gross credit flows and Cuciniello and di Iasio (2020) for the intensive and extensive margins. It reveals that the surge in net credit flows was primarily driven by gross credit expansion, with about 50 percent of the fluctuation attributed to the rise in public guaranteed loans. Additionally, fluctuations in credit expansion are predominantly influenced by the intensive margin, particularly the debt increase of firms with pre-existing multiple bank relationships, where lenders have lower exposure to their debt.

Research on Energy Conservation and Emission-Reduction Effects of Green Finance: Evidence from China

The energy-saving and low-carbon development model is one of the important symbols of high-quality economic development. This article attempts to study the environmental effects of green finance from both theoretical and empirical perspectives, that is, to test whether green finance policies contribute to achieving energy conservation and emission reduction. This article is based on provincial panel data from 2007 to 2020 in China and constructs a dynamic spatial Durbin model to examine the impact of green finance on environmental pollution and energy intensity. The results indicate that (1) green finance can achieve a dual effect of energy conservation and emission reduction simultaneously and has a significant promoting effect on energy conservation and emission reduction in neighboring regions. This conclusion is still valid after conducting robustness tests. (2) The energy-saving and emission-reduction effects of green finance exhibit significant regional heterogeneity, indicating that the performance of green finance is more outstanding in the eastern region with a higher level of economic development. (3) Mechanism testing has found that green finance can achieve energy-saving and emission-reduction effects through four channels: environmental regulation, credit allocation, enterprise profits, and enterprise innovation. Therefore, in order to further promote high-quality economic development, we need to build a comprehensive and multi-level green finance system, enrich the green finance policy toolbox, and smooth the transmission channels of green finance to promote green and stable economic development.

Intermediary Capital and the Credit Market

We propose a tractable framework to examine the role of intermediary capital in the allocation and pricing of credit. In our model, regulated financial intermediaries compete with unregulated investors, targeting distributions of heterogeneous borrowers. We derive a sufficient statistic that characterizes intermediaries’ cross-sectional lending decisions and provide a novel intermediary asset pricing equation that accounts for the endogenous segmentation of marginal investors across securities. These formulae reveal the central role of intermediaries’ shadow cost of capital in both credit allocation and pricing. Our results can concurrently rationalize a broad array of empirical facts documented in the context of credit markets. This paper was accepted by Tomasz Piskorski, finance. Funding: This work was supported by Marcus och Amalia Wallenbergs minnesfond [Grant 2021.0122].

Sectoral credit allocation and interest rate spreads worldwide

ABSTRACT Using a comprehensive quarterly database covering 22 advanced economies and 18 emerging market economies spanning the period from 1990 to 2018, this study provides evidence indicating that a higher ratio of total credit to the non-financial sector relative to GDP is associated with wider interest rate spreads. Importantly, this relationship between the stock of debt and spreads remains robust even after controlling for measures of debt flows in both advanced and emerging countries, suggesting that the stock of debt carries more valuable information for capturing a country’s financial position in international markets compared to the flow of debt. Moreover, through a detailed exploration of credit allocation across different sectors, this research reveals that the provision of credit to households and the government plays a crucial role in understanding the dynamics of interest rate spreads in both advanced and emerging countries. These empirical findings contribute to addressing the existing gap in understanding the determinants of the risk premium associated with cross-border financing activities. Additionally, the observed correlations between credit measures and spreads offer important empirical moments that should be incorporated into international macro models and financial policy.

Banking competition, credit financing and the efficiency of corporate technology innovation

Based on the data spanning 2010 to 2022, this study delves into how banking competition impacts the efficiency of enterprise science and technology innovation by lowering credit costs, enhancing credit availability, optimizing credit allocation, and offering empirical evidence for the significant role of banking competition in influencing corporate technology innovation efficiency. This paper concludes that increased competition in the banking sector notably impacts corporate technology innovation efficiency. Banking competition alters the traditional relationship-based lending model, enhancing banks' ability to assess risks and support innovative projects by enterprises, encouraging enterprises to enhance innovation quality and boost research and development investments, leading to a learning curve effect on innovation and enhancing the efficiency of technology innovation. Mechanism analysis reveals that credit financing plays an intermediary role. Competition in the banking sector leads to lower costs and increased availability of bank credit for research and development in enterprises. It helps address the issue of limited finance for innovation in enterprises, encourages larger-scale innovation, and enhances innovation efficiency. Banking rivalry has a role in enhancing corporate technology innovation efficiency, which is influenced by the environment to a certain extent.

Economic growth targets and bank risk exposure: Evidence from China

Managing growth targets to maintain economic growth is a common practice worldwide. Using data of local commercial banks over the period 2003 to 2019, we examine the effect of local economic growth targets on the risk exposure of commercial banks in China. We find that local economic growth targets are positively associated with bank risk exposure. This relationship is more pronounced in (1) state-owned banks and those with executives having stronger promotion incentives, (2) provinces with politicians at critical stages for promotion, lower marketization, and lower growth potential, and (3) periods with bleak economic outlook and greater economic policy uncertainty. We further discuss two possible channels through which growth targets affect bank risk: the credit allocation channel and the credit quality channel. Our study sheds new light on the potential costs associated with local governments’ efforts to stabilize economic growth from the perspective of bank risk exposure.

The impact of green credit distribution on bank performance and influencing factors

This research aims to analyze the impact of green credit distribution by banks on bank performance and identify factors that can influence green credit. The study utilizes data from 46 banks in Indonesia during the 2018-2022 period, by using the panel data regression method. The findings indicate (i) that green credit does not have a significant influence on credit risk, as measured by the NPL (Non-performing Loan). The distribution of more green credit allocations does not result in a decrease in bank credit risk. Additionally, sustainable business borrowers do not exhibit better debt repayment performance compared to the non-sustainable business category. (ii) In terms of bank profitability, green credit does not impact ROE (Return on Equity) and NIM (Net Interest Margin), but it does have a negative effect on ROA (Return on Assets). Banks that allocate a significant portion of their credit distribution to green initiatives tend to experience a decline in their profits. (iii) Bank size has a positive impact on the allocation of green credit, with larger banks dedicating a greater portion to the distribution of green credit. Larger banks possess more capital and extensive networks, making them better equipped to address potential risks compared to smaller banks. (iv) Meanwhile, government ownership and good corporate governance in banks do not influence the proportion of green credit distribution. The author recommends that the government make corrections to existing green financing programs, to cultivate a green credit ecosystem in Indonesia. One concrete step that can be taken is to support government-owned banks in becoming pioneers in the distribution of green credit in Indonesia.

Target–distractor memory joint tracking algorithm via Credit Allocation Network

Target–distractor memory joint tracking algorithm via Credit Allocation Network

Political Influence, Bank Capital, and Credit Allocation

Political influence on bank credit allocation is often viewed as being necessary to address social problems like income inequality. We hypothesize that such influence elicits bank capital responses. Our hypothesis yields three testable predictions for which we find supporting evidence. First, when banks observe election outcomes that suggest greater impending political credit-allocation influence, they reduce capital to increase fragility and deter political influence. Second, banks subject to greater political influence nonetheless increase lending that politicians favor, and household consumption consequently increases. Third, these banks exhibit poorer post-lending performance. Our study has implications for the interaction between politics, household consumption, and bank risk through a specific channel—the interplay between credit-allocation regulation and bank capital structure. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.04056 .

Financial Technology and Digital Transformation of Enterprises—A Perspective of Financing Constraints and Credit Rationing

With the rapid development of the Digital economy, the Digital transformation of enterprises has become a new trend, and the effective promotion of the Digitalization of the enterprise is the key to the high-quality development of China’s economy. Through web crawler crawling data of Shanghai and Shenzhen A-share listed companies from 2011 to 2019 to investigate the role of regional FinTech in Digital transformation of enterprises, using text mining methods. The empirical results show that FinTech has a significant positive effect on Digital transformation of enterprises. After robustness tests such as reducing endogenous problems and replacing samples, the conclusions are still robust; Fintech reduces the information asymmetry between financial institutions and enterprises, alleviates the financing constraints of enterprises, and improves the efficiency of credit allocation by accelerating credit approval, thus promoting the Digital transformation of enterprises; In small and medium-sized private enterprises, FinTech has a more obvious effect on promoting enterprises’ Digital transformation; In the more economically backward Middle West, FinTech can also play its role.

Impact of Green Credit Incentives on Operational Decisions of Green Supply Chain

Financial incentives have been introduced to guide financial institutions to increase green credit allocation, strengthen environmental risk management, and enhance support for green and low-carbon development. This paper investigated the government’s support for the carbon-emission supply chain by implementing green credit incentives. Two financial incentives are explored: performance-based incentives and interest subsidies. We conduct game-theoretic models to examine the characteristics and effects of two financial incentives on the supply chain. Our results reveal that: (1) both incentives are effective in scaling up supply chain performance and stimulate investment in emission reduction, while the mechanism differs according to the direct beneficiaries; (2) performance-based incentives are more sensitive to environmental damage, while the optimal subsidy ratio is more sensitive to consumer green awareness, indicating that the bank has an instinctive aversion to the risks inherent in abatement investments; (3) it is optimal for the government to intervene in green credit financing activities when environmental advantages and costs and consumer green consciousness are recognized. Our conclusions suggest the government can determine financial incentives for green credit based on the stage of green transition development and the real, demanding requirements of transition goals.

THE EFFECT OF CREDIT ALLOCATION AND LOAN INTEREST ON SMALL BUSINESS INCOME (KIF) AT KAEBAUK INVESTIMENTU NO FINANSAS (KIF), DILI, TIMOR-LESTE

The theme of this research is the effect of credit allocation and loan interest rates on the income level of small businesses in Kaebauk Investimentu and Finance, Dili, Timor-Leste. The purpose of this study was to analyze and examine the effect of credit allocation on the income level of small businesses in the Investment and Finance district, Dili, Timor-Leste and to analyze the credit interest rate on the income level of small businesses in the Investment and Finance district, Dili, Timor-Leste. Leste. leste. The hypothesis in this study explains that there is a positive and significant effect of credit allocation on the income level of small businesses in the Investment and Finance district, Dili, Timor-Leste and that there is a positive and significant effect of credit interest rates on the income level of small businesses in Kaebauk Investment and Finance, Dili, Timor- Leste. The methodology in this research is descriptive quantitative with multiple linear regression analysis tool. The results of this study indicate that there is no positive effect of credit allocation on

Empirical Study on the Impact of Digital Finance on Commercial Credit Allocation in SMEs

Against the backdrop of rapid digital finance development, the effective allocation of commercial credit to small and medium enterprises (SMEs) has become a crucial issue in China's economic growth. This study, based on data from Chinese listed SMEs from 2011 to 2021, examines the impact of digital finance development on the allocation of commercial credit to SMEs and its mechanisms. The findings indicate that digital finance significantly reduces both the demand for commercial credit financing and the supply of commercial credit to SMEs, a conclusion that holds even after robustness tests. Mechanism tests confirm that digital finance achieves this by easing financing constraints and reducing information asymmetry. Furthermore, digital finance exerts a heterogeneous impact on SMEs of different types and regions, leading to several pertinent recommendations.

Commercial bank digital transformation, information costs, and corporate financial constraints

ABSTRACT The rapid development of digital finance has transformed traditional financial institutions. We investigate the effect and economic consequences of bank digital transformation on corporate financial constraints using data from China. The results show that bank digital transformation alleviates corporate financial constraints by decreasing information search, processing, and verification costs. Furthermore, the effect of bank digital transformation on corporate financial constraints is more pronounced for firms with higher contract intensity, more intangible assets, and poorer external information environment. We also find that bank digital transformation alleviates corporate financial constraints by increasing debt financing. In addition, we show that digital transformation promotes lending by big banks, resulting in the crowding-out effect. Finally, we find that bank digital transformation promotes the flow of credit resources to non-zombie firms, which effectively improves credit allocation efficiency. This paper extends research on digital finance and new structural finance from the perspective of bank digital transformation.

A STUDY OF AGRICULTURE CREDIT SYSTEM IN TELANGANA

This article delves into the intricate landscape of agricultural credit in Telangana, emphasizing its pivotal role in driving rural prosperity and sustainable development. Through a comprehensive analysis, it examines the eligibility criteria, components, and significance of crop loans, alongside the implementation and impact of the Crop Loan Waiver Scheme. Furthermore, it elucidates the crucial role played by the State Level Bankers Committee (SLBC) in coordinating credit allocation and fostering collaboration among stakeholders. Despite the advantages offered by agricultural credit schemes, challenges persist, including implementation effectiveness and disparities in credit access among vulnerable groups. Drawing on findings, the article proposes actionable suggestions to enhance the efficiency, inclusivity, and sustainability of agricultural credit initiatives in Telangana, emphasizing the importance of targeted interventions and farmer-centric policies for fostering holistic agricultural development and uplifting rural communities.

Transforming Credit Allocation to Support Economic Justice through Shared Value: A Mixed-Methods Decision Modelling Approach

Transforming Credit Allocation to Support Economic Justice through Shared Value: A Mixed-Methods Decision Modelling Approach