Loan Demand Research Articles

Banks During the Pandemic: A Japanese Perspective

In recent years, Japanese banks have revived their leading international role in the provision of global liquidity. Since the start of the pandemic of COVID-19, Japanese banks have increased their overseas lending at a much higher pace. This article looks at the activities of Japanese banks, and the drivers behind such a surge by considering factors that characterize the domestic economy. It is argued that uncertainties associated with COVID-19, and government response by means of introducing numerous unconventional measures to counter adverse effects of the pandemic, have increased cash hoarding in the economy. Japanese banks have seen a surge in the deposits held, as well as a decline in loans. Data from the Senior Loan Officer Opinion Survey on Bank Lending Practices at Large Japanese Banks reveals that the demand for loans from all size firms and households has declined since mid-2020. Faced with ongoing razor-thin margins and prolonged low interest rates at home, Japanese banks have continued their overseas activities in a search for yield; and they have increased their exposure to offshore financial centers which could have potential domestic financial stability implications.

The necessity of small loans: the borrowing and lending among low-income earners in early 20th century Sweden

ABSTRACT It is difficult for households to match a low and fluctuating income with their expenditures. One short-term strategy for managing cash-flow problems is to turn to one’s social networks for support. This article describes and analyses the borrowing and lending of small loans (corresponding to one-two days of pay) among low-income earners and the role these loans had in the household economy. By analysing the detailed weekly reports in the Swedish cost of living survey 1913/14, it is possible to explain when and why households borrowed and lent. This was after a period of rising real wages in Sweden, yet surpluses were still small and a public safety net had only begun developing. More than half of the studied 118 workers and 105 lower officials, respectively, borrowed small sums. However, most just borrowed once or a few times over the year. To give a loan was less common than borrowing. Some lenders likely felt obliged to give loans to less well-off borrowers. Other households engaged in reciprocal borrowing and lending of small loans. Small loans were mostly used to handle income shortfalls and not expenditures shocks. Consequently, larger income fluctuations led to more borrowing among workers, unlike the level of household income. Being in a vulnerable position in the life-cycle with young children also increased the risk of borrowing among both workers and lower officials. However, income from adolescents did not seem to have mitigated cash-flow problems as older children increased household borrowing too. Lending declined after the start of WWI. This means that the source underestimates annual lending during peacetime conditions. However, the demand for loans remained largely constant, forcing workers in need to seek out other sources of credit. Still, households’ social networks played an important part in an incessant struggle to make ends meet.

The Impact of Non-Performing Loans and Economic Shock on The Stability of Islamic Banking Performance as Moderating Variable in The COVID-19 Pandemic Era

This study aims to determine the effect of non-performing loans and economic shock as an intervening variable on loanable supply and loanable demand in Islamic banks which have an impact on the stability of the performance of Islamic banks in the Pandemic era. The research period is monthly with the research period from June 2019 – June 2021 using behavioral data analysis. We use secondary data from the Indonesian financial services authority. We investigated the data using linear and non-linear analysis to investigate the influence of loanable supply and loanable demand on the performance of Islamic banks in normal times or in a stable economy and the occurrence of economic shocks. From the results of our investigation, we found that non-performing loans have a significant impact on loan supply and loan demand in influencing the stability of the performance of Islamic banks in the era of the COVID-19 pandemic. Performance shocks in Islamic banks in the pandemic era are not only due to economic shocks but also due to non-performing loans from Islamic bank customers who are unable or have difficulty completing their obligations to Islamic banks.

가계의 금융권 선택과 채무위험: 비은행권 대출을 중심으로

There are voices worrying about the balloon effect caused by the tightening of banking regulations by the financial authorities. There are a number of studies showing that households with limited access to bank credit loans have shifted their demand for loans to non-bank loans, which have to bear high interest rates. Given that the total amount of non-bank financial loans is not large, it may not immediately lead to insolvency of financial institutions. However, if repayment of principal and interest is no longer possible due to various factors affecting the household economy, it may cause economic repercussions such as the collapse of the household economy. The purpose of this study is to analyze major variables related to the borrower’s borrowing from non-bank financial institution and their payment delinquency. This study found that non-regular workers, respondents with low level of income or wealth, and respondents living in non-metropolitan areas were more likely to borrow money from non-bank financial institutions. In addition, respondents living in the metropolitan areas, those who borrowed money due to debt repayment, and those with an excessive debt-to-asset ratio were more likely to default.

Coping with the loan transition in professional association football

The present study generated a qualitative examination of male professional football players’ experiences of stress during the loan transition using the Demand Resources and Individual Effects (DRIVE) Model. Purposeful sampling was used to recruit participants (M age = 23; SD = 2.5) from various Premier League (n = 2), Championship (n = 8), and League (n = 1) clubs across the UK who have experienced a loan to another club. Guided by a critical realist philosophical orientation, semi-structured interviews were deductively developed based upon the DRIVE model to stimulate contextual discussion about the pre-transition resources (e.g. organizational support), perceived transition demands (e.g. performance pressure) and appraisals. Finally, players were asked to discuss their strategies for coping (e.g. situational coping) with loan demands and if they deemed this coping to be effective. Braun and Clarke’s (2013) thematic content analysis was utilised. Deductive thematic analysis was used to identify and evidence themes that were articulated in relation to the demands experienced, appraisals associated with such demands, and the coping strategies used to manage these demands. An inductive approach was used to code sub-themes from the data, on the basis of players’ specific experiences that had not yet been exemplified in the existing literature. This study presented loan transition demands (performance and organizational), contextual individual differences (situational coping, dispositional coping, and protective factors) and loan resources (transition preconditions and during loan) that may assist individuals’ performance and well-being. Practitioners would be advised to work with players on facilitating pre-transition resources and identify perceived demands they consider important to their transition process. Future research should seek to explore the loan transition within elite female football.

The Effects of Mortgage Credit Availability: Evidence from Minimum Credit Score Lending Rules

This paper uses changes in mortgage lenders’ minimum credit score thresholds to credibly identify the effects of access to household credit. Falling under these thresholds has very large negative effects on borrowing for up to two years, and these effects fail to reverse within four years. The effects are particularly concentrated among individuals who have relatively high credit demand and face relatively large contractions in credit supply. In addition, access to new mortgage credit reduces delinquency on nonmortgage debt and appears to spill over to demand for auto loans. (JEL G21, G51, R21)

Hazardous lending: The impact of natural disasters on bank asset portfolio

This paper examines how banks adjust their asset structure in response to changes in loan demand following natural disasters. We demonstrate how banks’ asset diversification strategy helps clients smooth consumption and supports local recovery. In the empirical section, we apply the difference-in-differences method and determine that U.S. commercial banks increase real estate lending after disasters and sell government bonds to finance this disaster-driven credit surge. The theoretical section presents a novel multiple-asset dynamic credit allocation model that explains our empirical findings. We use model simulations to predict and quantify the potential impact of climate change on the asset structure and profitability of banks given different scenarios.

REFINANCING RATE AND ITS IMPACT ON THE COUNTRY'S ECONOMY IN THE CONTEXT OF THE COVID PANDEMIC

REFINANCING RATE AND ITS IMPACT ON THE COUNTRY'S ECONOMY IN THE CONTEXT OF THE COVID PANDEMIC

The Financial Accelerator, Wages, and Optimal Monetary Policy

This paper studies the effects of labor market outcomes on firms’ loan demand and on credit intermediation. In a first step, I investigate how wages in the production sector affect bank net worth and the process of financial intermediation in partial equilibrium. Second, the role of the identified channels are studied in general equilibrium using a new- Keynesian DSGE-model with financial frictions and an endogenous financial accelerator mechanism. Third, I investigate how perfect and imperfect labor markets, in a setting with interactions between production factor costs and the intermediation of credit, affect the transmission mechanism of monetary policy. The analysis reveals that financial frictions reduce the factor demand elasticity of capital to a change in wages. This finding is relevant for the determination of optimal monetary policy, both for financial shocks and supply shocks inflation stabilization imposes high welfare costs. At the same time, stabilizing nominal wages becomes welfare beneficial by reducing both the volatility of the credit spread and the output gap.

Loan Prediction System Using Machine Learning

As the needs of people are increasing, the demand for loans in banks is also frequently getting higher every day. Banks typically process an applicant’s loan after screening and verifying the applicant’s eligibility, which is a difficult and time-consuming process. In some cases, some applicants default and banks lose capital. The machine learning approach is ideal for reducing human effort and effective decision making in the loan approval process by implementing machine learning tools that use classification algorithms to predict eligible loan applicants.

Peril or Promise—How the SME Banking Sector Will Perform in 2022 and beyond? Do We See an Overreliance on Recovery?

The study takes a specific look at the microstructure of banking lending to SMEs and the latent trials in maintaining a better balance between the loan demand and supply after the COVID-19 pandemic to upkeep the overall economic goals. The global “war” on the COVID-19 pandemic and related economic waves indeed have led to the worldwide recession. The COVID-19 crisis becomes the most extensive systemic-risk unification the world has ever comprehended in the commercial sense. More actions are needed to avoid falling these economies into life-support despite government initiatives regarding new regulations and stimulus packages. Unfortunately, the smallest business segment struggles and fails to claim essential funding through internal and external sources due to inherent weaknesses and poor business architecture. Historically, the SME funding gap was one of the critical areas of discussion and research. Before the current situation, accessing financial services, crucial for SMEs’ growth, severely constrained many economies. However, the problem has further deteriorated. The prolonged low-interest environment, high competition, and compressed interest margins made many banks under-priced SME risk, particularly after the previous financial crisis. Against this backdrop, the predominant SME lenders experience high NPL ratios, adversely affecting the entire banking system’s soundness and lending to the real economy.

“There is No Planet B", but for Banks “There are Countries B to Z": Domestic Climate Policy and Cross-Border Bank Lending

We provide evidence that banks increase cross-border lending in response to higher climate policy stringency in their home countries. Saturating with granular set of fixed effects and including a rich set of control variables, we show that the increase in cross-border lending is not driven by loan demand and/or other bank home country characteristics. In line with banks use cross-border lending as a regulatory arbitrage tool, the increase in cross-border lending occurs only if banks' home countries have more stringent climate policy compared to their borrowers' countries. The effect is stronger for large, lowly capitalized banks with high NPL ratios and for banks with more experience in cross-border lending. Our results suggest that without a global cooperation, cross-border lending can be a channel that reduces the effectiveness of climate policies.

Research on liquidity risk of commercial bank – from the view of comparison of Chinese and American commercial banks

The liquidity risk of commercial banks has become an important driver of the major risks in the modern economic system. This paper synthesizes the off balance sheet items which are often ignored in traditional bank liquidity researches, and uses the method of tracking and comparative analysis in different window periods to explore the liquidity changes and possible risks of Chinese commercial banks before, during and after the financial crisis. It is found that traditional loan projects, committed loan projects and demand deposits are important drivers of liquidity risk; Although the liquidity level of China’s banks is high, due to the high demand deposit rate, low core capital ratio, rapid loan growth and high non-performing rate, and the lack of risk prevention awareness, liquidity risk is still a major risk that China’s commercial banks need to face.

ПРОБЛЕМИ РИНКУ КРЕДИТУВАННЯ УКРАЇНИ В УМОВАХ ВОЄННОГО СТАНУ

Before the start of russia's large-scale invasion the demand for loans in Ukraine was caused by: the improvement of the macroeconomic situation in the country, a decrease in interest rates and gov-ernment programs to support entrepreneurship and mortgage lending. The insolvency of debtors dur-ing the war led to an increase in the volume of overdue loans and, as a result, a deterioration in the quality of banks' loan portfolios.The article systematizes the problems of the lending market that arose due to the military ac-tions in Ukraine, determines the priority of the introduction of anti-crisis measures to satisfy both the interests of creditors and borrowers.We have identified a number of factors that have worsened the quality of banks' loan portfolios and the creditworthiness of borrowers who have issued loans in recent years. In the article were stud-ied the reasons for the increase in the cost of new loans and the decrease in demand for them. Measures of the loan market regulator to ease requirements for banks in the credit risk management system have been systematized. The content and priority of the introduction of anti-crisis measures to settle the interests of lenders and borrowers were determined, state programs and grants to support business lending for the recovery of Ukraine were analyzed.Іt was concluded that the banking system of Ukraine has enough liquid funds for lending, but the lending market is experiencing the painful consequences of the state of war: high risks associated with the war increased theprice of credit funds; the quality of banks' loan portfolios deteriorated due to the low solvency of borrowers, credit risk reduced the profitability of banking activities; the demand for new loans fell sharply due to the shutdown of certain businesses, disruption of logistics, migration of employees of business structures; part of the collateral for bank loans (including mortgages) has been destroyed and it is still not solved what the mechanism of compensation for losses should be for banks.

Has previous loan rejection scarred firms from applying for loans during Covid-19?

The concept of the ‘discouraged’ borrower is well documented. In this paper, we consider whether smaller firms in the UK who have been previously rejected for bank loans have been scarred by the experience so badly that even in the presence of two exceptionally generous Covid-19 loan guarantee schemes, they still refuse to make an application. Furthermore, we also consider what happens when they do. As banks have either zero or minimal loss exposure, do they still maintain their normal strict lending protocols or do they relax their standards to fulfil the governments’ objective of supporting struggling businesses through the crisis? Our findings show that 72% of previously rejected borrowers are reluctant to request loans. We find some evidence that previously scarred firms faced such severe liquidity problems that they relaxed their distrust of banks during the Covid-19 crisis. However, their share of the government-guaranteed loan portfolio was slightly lower suggesting that banks were treating each new loan application on its merits.Plain English SummaryThe Covid-19 crisis hit smaller businesses so hard that even previously rejected borrowers were forced to apply for loans to keep them afloat. Previous loan rejections have not discouraged small businesses in the UK in applying for Covid-19 government-guaranteed loans. Banks have used the loan guarantee schemes to continue to supply loans to small business during the pandemic. Our paper analyses the important phenomenon of borrower scarring and discouragement, when potential debtors are self-excluded from the lending market because they have previous rejections or expect a negative bank response. We consider around 45,000 UK small businesses from 2018 to 2020. On the demand side, we find that the economic shock for small businesses during the pandemic dissipates the scarring effect. Specifically, we find that micro and small businesses had the highest loan demand in the first two quarters of the pandemic (from March 2020). On the supply side, we show that scarred borrowers were not routed onto Covid-19 government-guaranteed loan schemes. These findings show the importance of government-backed lending schemes for small businesses during crisis period.

Understanding the Dynamics of UK Covid‐19 SME Financing

AbstractThe scale of the UK government's response to the Covid‐19 crisis after the first lockdown in March 2020 was unprecedented. For the business sector, two financing schemes were particularly relevant: the Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS). Both were designed to support the capitalization of businesses through this difficult trading period. In this paper, we use data covering the first two quarters of the Covid‐19 crisis to explore the dynamics of small and medium‐sized enterprise (SME) financing and in particular the role of government support schemes. Our findings show that 92.1% of all debt funds provided in this period were backed by the UK government, which compares to less than 5% under normal circumstances. We find that the demand, supply and government share of SME lending increased from Covid‐19 quarter 1 (April–June 2020) to quarter 2 (July–September 2020), that micro and small businesses had the highest demand for loans, and that better‐performing firms were more likely to receive loans. Further, in a world where more loan requests than ever were granted, the government share of this pool of loans had a different risk profile than the small pool of non‐government‐backed loans.

A Systems Framework for International Development: The Data‐Layered Causal Loop Diagram

Meeting the United Nations Sustainable Development Goals (SDGs) will require adapting or redirecting a variety of very complex global and local human systems. It is essential that development scholars and practitioners have tools to understand the dynamics of these systems and the key drivers of their behavior, such as barriers to progress and leverage points for driving sustainable change. System dynamics tools are well suited to address this challenge, but they must first be adapted for the data‐poor and fragmented environment of development work. Our key contribution is to extend the causal loop diagram (CLD) with a data layer that describes the status of and change in each variable based on available data. By testing dynamic hypotheses against the system's actual behavior, it enables analysis of a system's dynamics and behavioral drivers without simulation. The data‐layered CLD was developed through a 4‐year engagement with USAID/Uganda. Its contributions are illustrated through an application to agricultural financing in Uganda. Our analysis identified a lack of demand for agricultural loans as a major barrier to broadening agricultural financing, partially refuting an existing hypothesis that access to credit was the main constraint. Our work extends system dynamics theory to meet the challenges of this practice environment, enabling analysis of the complex dynamics that are crucial to achieving the SDGs.

Domestic Lending and the Pandemic: How Does Banks' Exposure to Covid-19 Abroad Affect Their Lending in the United States?

<ns3:p>Shortly after the onset of the pandemic, U.S. banks cut their term lending to businesses–but little is known about how much, and why, banks' choice to ration credit contributed to this contraction. Afforded by a unique combination of several highly granular bank regulatory datasets, we identify the role of banks' exposure to Covid-related restrictions abroad – a balance sheet "shock" that affects only banks' credit supply, but not their US borrowers' demand for loans. We find that US banks with higher foreign Covid exposure cut their lending to US firms, and tightened terms on such loans, significantly more. Banks having become less risk tolerant, as well as foreign borrowers defaulting and drawing down on their cross-border credit lines, were potent mechanisms through which foreign Covid exposure reduced banks' domestic lending.</ns3:p>

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.

Heterogeneity and state dependence in firms’ access to bank credit

This paper investigates firms’ access to bank credit in eleven euro area countries over the periods 2014–2019. Exploiting firm-level longitudinal data, we analyse loan demand and credit rationing probabilities, accounting for sample selection, unobserved heterogeneity and state dependence. Empirical results show that small and informationally opaque businesses, with deteriorated public support and credit history, face greater difficulties in obtaining bank loans. Furthermore, we provide evidence of a significant degree of state dependence in access to credit. In particular, firms that have already experienced credit restrictions are more likely to face further constraints, while enterprises that applied for bank financing in the past seem to have easier access to credit. Focusing on the subset of firms actually needing additional bank financing, we also find that past credit restrictions significantly reduce their current demand, providing evidence of a significant discouragement effect.