Loan Demand Research Articles

Effects of Bribery on Firms' Environmental Innovation Adoption in Vietnam: Mediating Roles of Firms' Bargaining Power and Credit and Institutional Constraints

This paper uses survey data of small and medium-sized enterprises (SMEs) in Vietnam, from 2011 to 2015, to examine the effects of bribery on environmental innovation decisions by firms, accounting for the roles of bargaining power and/or credit and institutional constraints. In the study, bribery activities are categorized into greasing and rent-seeking forms. Self-assessment of firms on the uncertainty of government policies and the competition environment is used to capture institutional constraints, while firm size and legal registration status are used to represent bargaining power. The group of credit-constrained firms is further broken down into those that have demand for more loans and those not currently looking for a loan application. Our empirical results provide evidence that greasing bribery has a positive effect on firms' decisions about implementation of environmental innovation (the “greasing-the-wheels” hypothesis) while there is no impact from rent-seeking bribery. The positive effect of greasing bribery is particularly sizable for large, formally registered firms, or those facing no credit constraints, while specific types of institutional constraints that firms perceive as obstacles to their growth also affect the magnitude of the impact. Lastly, when endogeneity is controlled, the effect of greasing bribery becomes more pronounced and there is evidence on the “sanding-the-wheels” hypothesis of rent-seeking bribery.

Economic Uncertainty and Bank Lending

AbstractThis paper shows that economic uncertainty proxied by the variance risk premium (VRP) has an important explanatory power for bank credit supply and demand. Higher VRP exerts a negative influence on both loan demand and supply, increases loan spreads, reduces loan size and maturity, and increases the proportion of collateralized loans. These effects are substantive in the syndicated loan market and are worse off during economic recessions. Upon isolating the effect of uncertainty on bank credit supply from loan demand, we find that VRP dominates credit supply, which suggests that bank credit shortages can potentially aggravate economic downturn during recessions.

Customer Information Disclosure and Collateral Loan: Evidence from Chinese Listed Companies

ABSTRACT How supply chain information can help a company is given considerable attention by academic and practical circles. As boosting in the Chinese capital market, there is a higher demand for loans. Our study uses 2007–2017 Chinese listed company data to study whether information about major customers affecting the company’s reliance on collateral loan, which reflects the incremental value for banks assessing credit risks. The results found that the detailed customer information disclosed by the company can send positive signals to the bank of a high-quality information environment and reduce its dependence on collateral loans. While customer concentration is one of the credit risk factors for banks, which increases the company’s dependence on collateral loans instead. Further research found that a benign customer relationship can alleviate the risk effect brought by customer concentration.

Assessing Effects of Capital Adequacy Ratio Requirements on Loan Demand of Kenya Commercial Bank Eldoret Town

Security of investors' reserve remains the significant worry of bank controllers. It is in this regard the capital sufficiency becomes significant and imperative. Capital adequacy is an origination that results from reworking the banks' current capital structure to rebuild the banking industry against the widespread establishment. This research's objective was to assess the effect of capital adequacy ratio requirements on the Bank of Kenya Commercial Bank's loan demand. The study adopted the Capital Buffer Theory. The study reviewed related literature to capital adequacy ratio requirements on the efficiency in the Bank. This study adopted an exploratory research design. The sample population of interest in this study consisted of all 23-bank employees of KCB, Referral Branch. The study adopted a census survey. The following research questions guided the interview. How effective would be capital adequacy ratio requirements on loan demand of Kenya Commercial Bank? The study used interview guides in the collection of data. Qualitative analysis was used to analyze the perception data collected from the key informants. Joint subjects were determined, and qualitative data, organizing, and discussing based on the main objective were done. These were presented using grouped data collected in the form of discussion. From the interviewed respondents, it was found that there might be significant impacts of capital adequacy ratio requirements on loan demand of KCB. The elasticity of loan rate due to capital adequacy ratio requirement might affect loan demand, implying that there would be a change in loan demand for every percentage change in the loan rate. The study recommends that bank regulators be keen on the banks' capital adequacy ratio by laying down financial regulations on liquidity since financial regulation aims to enable banks to improve liquidity and solvency. Stricter regulation may be suitable for bank stability, but not for bank efficiency; restricting banks may lower bank efficiency and increase the probability of a banking crisis. There is a need for capital supplementation to keep up with Capital Adequacy Ratio (CAR) since stricter capital adequacy, robust supervision, and market discipline power promotes technical efficiency. Keywords: Loan, Demand, Ratio, Capital, Bank DOI: 10.7176/RJFA/12-6-06 Publication date: March 31 st 2021

Формування механізму забезпечення фінансової безпеки банківської установи

Annotation. Introduction. The current situation in the market of banking services is due to the influence of internal and external factors that make the bank vulnerable to crises. The financial security of the bank is the key to its stable development, so its research is extremely important. The priority of ensuring the financial security of the bank necessitates a comprehensive approach by developing an appropriate mechanism to ensure the financial security of the bank, taking into account the impact of external and internal threats. Purpose. The purpose of the work is to develop elements of the mechanism for ensuring the financial security of the bank, taking into account internal and external threats. Results. Theoretical problems of the mechanism of financial security of the bank are considered. Based on a critical analysis of the economic literature, the author’s interpretation of the concept of “mechanism for ensuring the financial security of the bank” from the standpoint of the impact of internal and external threats. The purpose and tasks of the mechanism of ensuring the financial security of the bank are highlighted. It is proposed to divide the functions of the bank’s financial security mechanism into basic and specific functions, those that are inherent in banking. The principles of ensuring the financial security of the bank are highlighted. It is substantiated that the process of forming the mechanism of ensuring the financial security of the bank is complex and should take into account the impact of internal and external threats. The threats affecting the financial security of commercial banks are ranked, with their division into internal and external. The main threats to the external environment are: global or local financial crises; falling demand for loans and banking services; the level of distrust on the part of legal entities and individuals in the banking system; refinancing volumes and the size of the discount rate; low level of investment activity in the country, and consequently the lack of investment funds. The main internal threats to the bank’s financial security are: errors in strategic planning and forecasting; irrational use of the bank’s potential; low level of return on assets. The stages of the mechanism of ensuring the financial security of a banking institution on the basis of taking into account the impact of internal and external threats have been formed. Conclusions. Based on the proposed stages of the mechanism of financial security of the bank, taking into account the impact of internal and external threats, we can trace all possible options for using strengths and opportunities in developing a strategy for financial stability of the bank, as well as identify factors influencing the bank. Keywords: threats, internal threats, external threats, collateral, mechanism, financial security of the bank, functions of the mechanism, principles of the mechanism, subjects and objects of the mechanism.

Life insurance demand and borrowing constraints

AbstractThe literature devoted limited attention to exploring the relationship between financial development and life insurance demand. Financial development supports life insurance supply by providing confidence in the financial system, more efficient payment systems, and higher availability of financial instruments. However, financial development reduces households' needs to save by relaxing borrowing constraints, indirectly affecting life insurance demand. We contribute by providing a demand‐driven explanation of the negative consequences of financial development on life insurance development. We find that more credit‐constrained countries have higher life insurance penetration on average. Indirectly, the role of borrowing constraints signifies the importance of life insurance policies as a financing tool in case of the realization of various background risks. This study integrates the knowledge from life insurance theory, life insurance lapse, policy loans demand, and saving under liquidity constraints literature and produces implications for researchers, policymakers, and life insurers.

ФАКТОРИ ПОПИТУ НА БАНКІВСЬКІ КРЕДИТИ В УКРАЇНІ: МОДЕЛЮВАННЯ ТА ОЦІНКА

Анотація. Наведено результати моделювання та оцінки ефектів впливу чинників попиту на банківські кредити з боку юридичних і фізичних осіб на обсяги банківського кредитування в Україні. Узагальнено чинники впливу на обсяги банківського кредитування з боку попиту від юридичних і фізичних осіб, виконано моделювання на базі статистичних даних для української практики в період з 2006 року до 2020-го. Розроблено векторно-авторегресійну модель оцінки чинників впливу на попит на банківські кредити з боку суб’єктів господарювання. Відповідно до побудованої моделі зроблені висновки, що зміна попиту на кредитні ресурси з боку юридичних осіб пояснюється зміною процентної ставки (на 30%), зміною індексу промислової продукції (15,6%), зміною індексу ПФТС (10,7%), зміною індексу цін виробників промислової продукції (1,0%), зміною самих себе у часі (42,5%). Також розроблено векторно-авторегресійну модель оцінки чинників впливу на попит на банківські кредити з боку домашніх господарств. Відповідно до побудованої моделі зроблено висновки, що зміна попиту на кредитні ресурси з боку фізичних осіб пояснюється зміною обсягу середньої заробітної плати (16,2 %), зміною процентної ставки (16 %), зміною витрат (8,2 %), зміною ВВП (7,7 %), індексом споживчих цін (6,9 %), зміною кількості зареєстрованих безробітних (2,9 %) і зміною самих себе в часі (42,1 %). Отримані результати можуть мати практичне застосування як у межах формування банківської кредитної політики, так і в межах державних регуляторних заходів впливу на активізацію кредитного сектору в країні. Ключові слова: банківський кредит, чинники попиту на банківські кредити, VAR-моделювання, домогосподарства, суб’єкти господарювання. Формул: 0; рис.: 3; табл.: 6; бібл. 11.

Mortgage loan demand and banks’ operational efficiency

Using data for 6740 U.S. banks from 1996 to 2016, we consider whether mortgage loan demand is a key determinant of banks’ cost efficiency and management quality. We estimate mortgage loan demand from loan-level applications at individual banks, and we estimate bank efficiency and management quality score from banks’ structural models. In line with theoretical considerations around economies of scale, our results show that loan amount demand improves cost efficiency, but the number of loan applications reduces cost efficiency. In contrast, mortgage loan demand has an economically less significant effect on management quality score. We also find that loan demand is an important factor in shaping banks’ loan quality, above and beyond operational efficiency.

Monitoring in Originate-to-Distribute Lending: Reputation versus Skin in the Game

Abstract Banks face liquidity and capital pressures that favor selling off the loans they originate, but loan sales undermine their monitoring incentives. A bank’s loan default history is a noisy measure of its past monitoring choices, which can serve as a reputation mechanism to incentivize current monitoring. In equilibrium, higher reputation banks monitor (weakly) more intensively; if retention is credible, they generally retain less of the loans they originate. Monitoring is difficult to sustain in periods with uncommonly large spikes in loan demand (“booms”), especially for low-reputation banks, which are more likely to accommodate boom demand and forgo monitoring.

Status of agricultural financing by commercial banks in Zimbabwe

Agricultural finance is indispensable for enhancing productive capacity in both small-scale and commercial farming. This study sought to establish the current status of agricultural financing by 12 registered and operational commercial banks in Zimbabwe in the year 2019. Questionnaires and interview guides were used to collect data. SPSS and NVivo were used for data analysis. All the commercial banks participated in agricultural financing with an average agricultural loan portfolio of 30%. However, their participation in agricultural lending is yet to reach the pre-land reform maximum of 91.3% attained in 1999. Land tenure and weather risks, as well as lack of collateral among farmers reduced the banks’ appetite for lending to the agricultural sector. The majority of the commercial banks offered value chain finance, invoice finance, overdraft facilities, and term loans to agricultural sector clients that mainly included; suppliers, medium-scale, and large-scale commercial farmers. The study established a mismatch in the demand and supply of loans in the medium to long term tenure range of 1 to more than 3 years. There was low demand for 1-3-year tenure loans according to the commercial banks, and a corresponding deficit in the supply of highly demanded longer-term loans of more than 3 years for capital expenditure (CAPEX). Therefore, government should aim to; stabilize currency; arrest hyperinflation; restore economic stability; address land tenure to ensure the bankability of the 99-year Lease; and create an environment that is conducive for investment in climate and weather resilience infrastructure. Local farmers should also invest in human and physical capital to improve their access to bank credit.
 JEL Code: Q14

Decentralized lending and its users: Insights from Compound

Decentralized finance (DeFi) has recently gained much attention and scrutiny because of its rapid growth. DeFi services replicate traditional financial services such as lending, exchange, and asset management, but they are currently unregulated, unlike their traditional counterparts. We investigate Compound – one of the earliest and largest DeFi lending protocol – to show how it works, who the users are and the potential motivations behind their uses. We find that the loan durations are short (31 days on average), borrowing rates volatile and borrowers are concerned about liquidation risk. Further analyses reveal that some loan demand may arise from leveraged investment strategies. Taken together with the tacit leverage in DeFi yield farming, further availability of on-chain lending could potentially transpire into DeFi systemic risk.

TARP from the Banks’ Perspective: Evidence from Conference Calls

Using earnings conference calls, we investigate banks’ views of the Troubled Asset Relief Program (TARP). Most banks in our sample did not plan to lend out the funds and our regressions confirm that they did not. The evidence suggests that TARP’s price diminished its usefulness in expanding credit supply. In contrast, banks more often expressed favorable views of the program in terms of its impact on capital ratios. We find that banks often described loan demand during the sample period as weak, but lack of demand does not explain the anemic loan growth that occurred after the TARP injections.

Blood Money: The Financial Implications of Plasma Sales for Individuals and Non-Bank Lenders

In the United States, households donate plasma for compensation at a higher rate than they use payday, auto-title, rent-to-own, or pawn loans. Our paper is the first to explore the financial implications for households of plasma donation. Plasma donors tend to be younger and less educated with lower incomes and credit scores; they are also more reliant on non-bank credit. We use dramatic growth in plasma centers between 2014 and 2021 to study the causal effect of the ability to donate plasma on non-bank credit. We find that access to a plasma donation center reduces demand (inquiries) for payday and installment loans by 6.5% and 8.1%, respectively, with larger effects (13.1% and 15.7%, respectively) on younger borrowers. Moreover, foot traffic increases by 7-10% at essential and non-essential goods establishments when a new plasma center opens nearby. Our findings suggest that plasma donation helps households smooth consumption without appealing to high-cost debt.

Determinants of Self-Help Groups lending to Enterprises in India: A Predictive Assessment using Supervised Machine Learning Algorithms

Despite several advantages of borrowing from Self Help Groups (SHGs), why do many enterprises in India, still rely on informal lenders (MoSPI, 2020)? To answer this question, we develop a novel enterprise-village matched dataset and use a variety of Machine Learning methods to predict the choice of an enterprise between SHG and informal lenders as the major source of finance. Among them, XGBoost with an AUC of 94% has the highest predictive power. We conduct several interpretable machine learning techniques to understand village-specific determinants of enterprise borrowing from SHG. Access to urban centers including district headquarter, and socio-demographic factors such as high literacy rates and improved sex ratios in a village, play important roles in credit uptake from SHGs. Absence of financial access points, such as commercial or cooperative bank branches, does not appear to be prohibitive. We also apply XGBoost model to estimate potential demand for SHG loans among self-financed firms. Potential for SHG inclusion among these firms, remains low and skewed toward southern districts.

СИСТЕМНОЕ ПРЕДСТАВЛЕНИЕ УЧАСТИЯ НЕРЕЗИДЕНТОВ НА РЫНКЕ ОБЛИГАЦИЙ ФЕДЕРАЛЬНОГО ЗАЙМА

The article is devoted to the development of the Federal loan bond market in the context of the financial crisis and the sanctions pressure. Federal loan bonds are considered as one of the most reliable exchange-traded instruments. That is due to the relatively low yield of Federal loan bonds and the very nature of the instrument, which is determined by the fact of lending money to the state. The paper examines the role of non-residents in the Federal loan bond market in order to estimate its sensitivity to Federal loan bond dumping by non-residents and its impact on Russia’s economic security. It shows how the dumping of Federal loan bonds by non-residents can affect the exchange rate in particular and the economy of the Russian Federation as a whole, and also describes potential sources of threats, which if implemented, could subject our economic system to critical stress, what may lead to loss of economic security. There are diagrams showing the impact of Federal loan bond sales and demand for them by non-residents on the economy. The key structural elements that influence the situation under consideration and shape the impact of the Federal loan bond market on the Russian economy are identified.

Analiza Minskijevog momenta u sistemu valutnog odbora u Bosni i Hercegovini

In the past decade the world faced the consequences of the global economic crisis proclaimed in 2008. The common case for everyone was a financial crisis in which every country bore the burden of the crisis in its own way, and in each country generators of the crisis appeared in different segments. In the 1980s American economist Hyman P. Minsky wrote about this topic, explaining the characteristics of financial crises in rigid financial systems. The aim of this paper is to understand the causes and the consequences of the crisis through creation, growth and bursting of the credit bubble in separate market segments in Bosnia and Herzegovina through the system of currency board. Through the application of vector autoregression model (VAR) the responses to shocks, recorded on the side of demand for loans which were generated in the capital markets and in the construction sector, and the credit shock of demand, which formed, developed and then exploded after the proclamation of the global economic crisis in Bosnia and Herzegovina, were analyzed. Interpretation of the results through the light of hypothesis of Minsky moment is corroborated by an additional fact that a rigid monetary system like currency board did not provide the necessary mechanisms for the maintenance of financial stability. Stability of the financial system of Bosnia and Herzegovina was saved exclusively by the will of parent banks from abroad whose daughters participate in the financial system of Bosnia and Herzegovina.

Designing Financial Support for SMEs during Crises: the Role of Bank Lending

When designing schemes to help SMEs survive crises, the government typically faces asymmetric information, so that it cannot target the SMEs most worth saving. We show that the government can exploit the information in the borrower loan demand to improve policy targets compared with existing programmes. If the aim is employment protection, optimal policy should fully subsidise the funding cost of only those SMEs whose loan size is below a threshold. If the aim is economic efficiency, the government should target SMEs whose loan size is above a threshold. In general, public policy should utilise private sectors' information and expertise.

Application of Difference-in-Difference Strategies in Finance: The Case of Natural Disasters and Bank Responses

Natural disasters are negative shocks that can severely disrupt the communities in which they occur. Disasters like hurricanes, tornados, floods, wildfires, and earthquakes, moreover, can cause severe property damage, including damages to homes, businesses, and automobiles. An important issue that arises is whether branches of banks in communities affected by natural disasters raise deposit rates to attract additional deposits in response to any deposit withdrawals and to meet any increase in loan demand for the rebuilding that takes place. Studies of the responses of banks to natural disasters increasingly find it useful to rely on a difference-in-differences (DID) identification strategy. The contribution of our paper is to examine how different choices that can be made affect the empirical results. Importantly, as our empirical results indicate, the discretion that a researcher uses in terms of the choices made at different stages do indeed produce different conclusions about the impact of natural disasters on bank deposit rates. If we do not match branches affected by natural disasters with those in adjacent communities not affected the results indicate that natural disasters have a statistically negative effect on deposit rates without matching and with a low degree of matching. However, when we use a medium or a high degree of matching there is no statistically significant effect. Moreover, when we use two different matching methods, the results differ. In the case of PSM, we find a statistically significant effect, but no effect in the case of CEM.

How Bad Are Weather Disasters for Banks?

Not very. We find that weather disasters over the last quarter century had insignificant or small effects on U.S. banks’ performance. This stability seems endogenous rather than a mere reflection of federal aid. Disasters increase loan demand, which offsets losses and actually boosts profits at larger banks. Local banks tend to avoid mortgage lending where floods are more common than official flood maps would predict, suggesting that local knowledge may also mitigate disaster impacts.

The Influence of Economic Factors on the Capital Buffer Calibration for Systemically Important Institutions in the EU

Capital requirements are key elements in banking regulation. As the failure of a systemically important institution poses a risk to the whole economy, they have to meet special regulations. Our research uses a unique data set to show the influence of economic factors on the capital buffer calibration for Other Systemically Important Institutions (O-SIIs). We show that the scoring process to identify and rank O-SIIs is comparable in the different countries of the EU, but the respective equity requirements are not. Nations with higher unemployment and a higher amount of non-performing loans demand less capital from their banks. Hence, their country average of capital buffer requirements per score depends on the economic situation rather than the scoring process as such.