Loan Demand Research Articles

Analysis of Rural Households’ Consumptive Loan Demand and the Influencing Factors

This study is about rural households’ demand of living consumptive loan in Shandong province. After carrying out follow-up survey for 6 consecutive years, the results show that the household consumptive loan demand is vigorous, and it has obvious regional differences, which is inversely proportional to the level of local economic development; the farmer's age, the size of family, income, assets of family, social resources they all have significant impacts on consumer loan demand. Paying attention to the rural consumptive credit and developing it are proposed based on above.

Did Pre-Crisis Mortgage Lending Limit Post-Crisis Corporate Lending? Evidence from UK Bank Balance Sheets

Was the bank credit crunch following the collapse of Lehman Brothers in September 2008 in many economies due to a loan supply collapse or to a decrease in loan demand? This paper investigates the effects of UK banks’ pre-crises exposure to residential property markets on their post-crisis business lending to explore the existence of a negative post-crisis loan supply shock. We isolate the loan supply effect from a loan demand effect by using a unique quasi-experimental setting and a rich, tailor-made micro-level data set on bank lending volumes, bank balance sheets and mortgage loan characteristics. Controlling for a range of bank-specific factors, we find that banks with larger shares of residential mortgages in total loans in 2008 Q2 reduced their lending to business more after 2008 Q3. Post-crisis lending to business is also sensitive to the riskiness of banks’ mortgage portfolios. Banks having more mortgages to borrowers with impaired credit history, or more mortgages to the self-employed, or mortgages with higher loan to value ratios prior to the crisis reduced their lending to non-financial businesses more.

Transmission Mechanism of Monetary Policy in Nigeria

This paper, explored the empirical importance of credit. It adds to the existing literature in two ways. First, it analyses in a systematic way both endogenous and exogenous instruments of monetary mechanism using information on the country’s main economic objectives as a proxy for bank credit availability by providing a framework in which to analyse the evidence in controlling money and credit. Second, by using bank’s prices (rather than quantities) it provides an alternative way to disentangle loan supply from loan demand shift in the ‘credit channel’ literature. The paper also provides empirical evidence on the role of banks in the monetary transmission process. The principal channel appears through lending to firms, which influences entire economy investment. The existence of an effective banking industry is necessary for every economy because it create the necessary environment for economic growth and development through its role in intermediating funds from surplus to deficit economic units. This stimulates investment economic growth, and employment as well as international trade and payment. The bottom line is that credit is an important part of the transmission process of Nigerian Monetary Policy.

The propensity of third sector organisations to borrow money in the UK

ABSTRACTIn recent years there has been much policy interest in the development of social investment initiatives. Many such proposals depend upon third sector organisations (TSOs) loaning working capital in order to bridge gaps in cash flow. Existing studies on the willingness of TSOs to borrow have tended to used selective samples, which may have led to an exaggeration of market demand. This article explores, with reference to robust evidence on the attitudes and behaviours of representative samples of TSOs from the Third Sector Trends Study in Northern England, the extent of interest in borrowing for a range of purposes including to buy or upgrade property, buy equipment or facilities, or borrow working capital. The article makes observations on current and future market demand for loans in light of the way that TSO leaders’ balance their dependence on given, earned and borrowed money.

Endogeneity of Money Supply: Evidence From Turkey

<p>There is a long discussion among academics and central bankers about the theories of money supply. According to the exogenous view, central banks have the full control over money supply via policy actions including the adjustments of interest rates and reserve ratios, both of which alter commercial banks’ lending decisions. However, the theory of endogenous money supply emphasizes the role of demand for bank loans in money creation. More specifically, banks create money by meeting the demand of economic agents. In this study, we investigate which of the money supply theories holds in Turkish economy for the period 2006-2015 by employing cointegration and causality tests. Our findings show that the causality runs from bank loans to money supply both in the short and long terms, which supports the endogenous view in a sense that central bank and the banks fully meet the total demand for money in Turkish economy.</p>

House Prices, Second Mortgages and Household Savings: An Empirical Investigation for the Netherlands, 1987-1994

Since the beginnings of the eighties house prices in the Netherlands have increased steadily and considerably. In this paper we study the effect of this development on the demand for second mortgages and on the savings of Dutch households. We use the data of the Dutch socio-economic panel for the years 1987-1994. These data contain self-reported values of the houses of owner-occupiers, which are shown to correspond to the median sales prices provided by the Dutch Association of Realtors. Households therefore seem to be well aware of the increase in the value of their house. We use panel data methods to investigate the effect of house prices on (i) the number and size of second mortgages, (ii) the savings of owner-occupiers and (iii) the savings of renters that may be considered as would-be owners. We find a significant effect of home equity on the demand for second mortgages. Savings of homeowners decrease when house prices accelerate. We find no evidence that increased demand for mortgage loans is caused by substitution from other forms of consumer credit. Contrary to results reported in the literature, we find no evidence of an increase in savings of would-be owners caused by higher house prices.

Can CRR, CAR and SLR policy tools perform perversely?

ABSTRACTA simple theoretical model is developed from the bank balance sheet identity to understand the effects of cash reserve ratio (CRR) on deposit multiplier. It is found that the deposit multiplier can behave perversely, depending on the loan demand and deposit supply parameters. Thus, CRR can work counter-factually and counter-intuitively, as a monetary policy tool. Further, it is found that the capital adequacy ratio – the Basel policy tool – can also work counter-intuitively. The statutory liquidity ratio tool almost mimics the CRR in performance.

Effects of FHA Loan Limit Increases by ESA 2008: Housing Demand and Adverse Selection

This paper examines the impacts of changes in the Federal Housing Administration (FHA) insured loan limit in response to the Economic Stimulus Act (ESA) of 2008. We use difference-in-difference approaches to compare the number of transactions and average loan-to-value ratios for properties located in high-cost areas and low-cost areas, before and after the ESA policy change. We find that the increase in loan limits does results larger demand for FHA loans, both in quantity and quality. However, the behavior is not driven by incentives to buy more housing or by wealth constraints. We find evidence of increased moral hazard in the sense that increased loan limits induced riskier borrowers (allowed “cherry-picking” against FHA), and that much of the increased demand for FHA loans came at the expense of other loans. For instance, newly qualified borrowers, especially via cash-out refinance loans, are more likely to take advantage of increased loan limit policy, and adjust their LTVs. Also, newly qualified loans had higher default rates and higher loss given default rate.

Assessing the efficacy of borrower-based macroprudential policy using an integrated micro-macro model for European households

We develop an integrated micro-macro model framework that is based on household survey data for a subset of the EU countries that the Household Finance and Consumption Survey (HFCS) contains. We use the model for the purpose of assessing the efficacy of borrower-based macroprudential instruments, namely loan-to-value (LTV) ratio and debt service to income (DSTI) ratio caps, and illustrate its outcome for four European countries. The simulation results from the model can be attached to bank balance sheets and their risk parameters to derive the impact of the policy measures on their capital position. The model framework also allows quantifying the macroeconomic feedback effects that would result from the policy-induced reduction of demand for mortgage loans. An assessment as to the comparative efficacy of LTV- versus DSTI-based policy suggests that DSTI caps may be more effective in containing household risk.

Demand for Home Loans-A Preliminary Investigation

Home ownership has always been among the top priorities of households in India. The post reforms period has witnessed higher disposable incomes, lower rates of inflation and lower rates of interest rate. Besides that, the increased thrust on retail lending and the aggressive stance of new entrants in the liberalized financial sector of India has led to the expansion of the housing finance sector among other things. These factors have created conducive environment for the demand for housing. In this context, the paper examined the demand for home loans as a derived demand for housing. The outstanding home loans of commercial banks, number of home loan accounts, share of home loans in the total credit of banks, etc, have been examined as indicators of trends in the demand for housing.

Making Room for the Needy: The Credit-Reallocation Effects of the ECB's Corporate QE

We analyse how the European Central Bank’s purchases of corporate bonds under its Corporate Sector Purchase Programme (CSPP) affected the financing of Spanish non-financial firms. We first document that the announcement of the CSPP in March 2016 raised significantly the firms’ propensity to issue CSPP-eligible bonds. The flipside was a drop in the demand for bank loans by these firms. This drop in the demand for credit by bond-issuers, which are usually large corporations, unchained a positive and significant side effect on the flow of new loans extended to firms that do not issue bonds, typically smaller. Specifically, we find that around 78% of the drop in loans previously given to bond issuers was redirected to other companies, which led them to raise investment. This reallocation of credit was amplified by the ECB’s Targeted Longer Term Refinancing Operations (TLTRO).

Bank Lending in the Knowledge Economy

We study bank portfolio allocations during the transition of the real sector to a knowledge economy in which firms use less tangible capital and invest more in intangible assets. We show that, as firms shift toward intangible assets that have lower collateral values, banks reallocate their portfolios away from commercial loans toward other assets, primarily residential real estate loans and liquid assets. This effect is more pronounced for large and less well capitalized banks and is robust to controlling for real estate loan demand. Our results suggest that increased firm investment in intangible assets can explain up to 20% of bank portfolio reallocation from commercial to residential lending over the last four decades.

Dynamic Incentives and Microfinance Borrowers

In recent years microfinance has been recognised as one of the policy mechanisms to achieve the goal of financial inclusion. Different lending models have been appropriated in microfinance sector to provide micro-loans to microfinance borrowers and their likely socio-economic impact on microfinance borrowers varies across different lending models. In case of microfinance, credit contracts between lenders and borrowers are designed in such a manner that borrowers’ initial loans are smaller but increases with each loan cycle over a period of time, termed as progressive lending.2 The present study using primary data collected from Mirzapur district in Uttar Pradesh attempts to explore the determinants/variables that explain progressive loan demand by microfinance borrowers in self-help groups (SHGs) and joint liability groups (JLGs). Using logit model, the paper concludes that in both SHGs and JLGs, longer association with microfinance groups helps in availing progressive loans from SHGs/microfinance institutions (MFIs) followed by loans procured from other sources also compel microfinance borrowers to demand larger loans from MFIs primarily for paying loan instalments. In addition to this income, size of group, number of dependents in household and asset endowment characteristics of SHG/JLG members also affect progressive loan demand by SHG/JLG members.

How Do Banks Adapt Their Asset Holdings to Binding Leverage Ratio and Liquidity Requirements under Basel III?

Over the last years, the capital regulation of banks under the Basel framework has undergone a fundamental review. In parallel to the implementation of Basel III, a non-risk-sensitive leverage ratio and new liquidity standards are introduced. I study the combined impact of the new regime on the behaviour of banks and find that a binding leverage ratio requirement prompts banks to rearrange the asset side of their balance sheets, by shifting from assets with low risk weights into assets with high risk weights. If the loan demand is elastic, this implies a reduction in volumes for low risk loans, and a concurrent increase in volumes for high risk loans. Further, a binding leverage ratio requirement encourages banks to reduce their voluntary liquidity reserves, or in combination with a binding liquidity coverage ratio requirement, to shrink the overall size of their balance sheets. Arguably, these effects where not intended by policy makers.

Does bank supervision impact bank loan growth?

We estimate the impact of a poor bank examination rating on the growth rates of individual bank loan portfolios. We use a novel approach to control for loan demand variation and estimate a fixed-effect model using an unbalanced panel with over 381,000 bank-quarter observations from the period 1994–2011. Our estimates show that a poor examination rating has a large negative impact on bank loan growth, even after controlling for the impact of monetary policy, bank capital and liquidity conditions, and any voluntary reduction in lending triggered by weak legacy loan portfolio performance or other bank losses. This previously unidentified effect is consistent with the hypothesis that the bank supervision process successfully constrains the lending activities of banks operating in an unsafe and unsound manner.

Marketplace Lending, Information Aggregation, and Liquidity

“Fintech” innovations are redefining the boundaries between financial intermediaries and markets. In this paper, we study the recent experience of Funding Circle, a leading UK online marketplace that directly matches retail investors with small and medium size corporate borrowers. Recently, Funding Circle replaced its auction system, where both prices and loan allocations were determined by the market, with a posted price system, where only the allocation is determined by the market. An important focus of our analysis is the tradeoff between the information aggregation of auctions and their susceptibility to liquidity shortages. We show that auctions generate a price discovery process that reveals information that can improve the prediction of default events. At the same time, increasing difficulties in matching changes in the demand for loans to the supply of funds has led to a fall in the precision of that information over the sample period, and an increase in the volatility of interest rates. We believe this explains the eventual switch to posted prices.

Determinants of loan demand in agriculture: empirical evidence from Germany

PurposeThe purpose of this paper is to empirically investigate the influencing factors of loan demand in agriculture. With the structural changes that agriculture is undergoing and the accordingly higher financing requirements and volumes, the analysis of loan demand in agriculture is of particular interest.Design/methodology/approachDetailed actual loan data at farm level, which is provided by a major German development bank for the agricultural sector, is used for the analysis. The data set covers the period from 2010 to 2014 and consists of 68,430 observations. Due to the data structure, an ordinary least square regression is conducted with the loan amount as the dependent variable. Many explanatory variables are included, such as the interest rate, the intended use of the loan, grace periods, the gross value added (GVA) and the business climate index for agriculture.FindingsAmongst others, the authors find that interest rate, GVA, grace periods and farmers’ business expectations have significant effects on the loan demand in agriculture. According to the results, the interest rate has a significant negative effect, whereas the granted grace periods, the GVA in agriculture and farmers’ business expectations have significant positive effects on the loan demand.Originality/valueThis paper investigates the determinants of loan demand in agriculture in a developed country by using unique and comprehensive data at loan and farm level. Amongst others, elasticities of loan demand in agriculture are determined.

Liquidity Trap, the Case of Albania

The liquidity trap is a rare economic phenomenon. It is associated with the phenomenon of deflation and other economic phenomena with negative consequences for the economy. It is caused by switching positions to extreme curves of aggregate demand and supply, the demand for loans, deposits, etc. This means that curbs of these aggregates pass almost completely horizontal or almost completely vertical. In the case of the Albanian economy these aggregates are insensitive by changes of basic interest rate and repo rate. The data of the last 19 months shows this situation. This makes the monetary policy of the Bank of Albania lose trasmision. Lose of this effect consequently leads to not influence monetary policy to the economic growth. In these conditions economic growth is affected expansionary by fiscal policies applied by the government. Since the inflation rate is low, and in downward trend, we propose money emission to increase the amount of money in circulation. With this move will increase aggregate demand by stimulating the growth of aggregate supply. In this paper have used analysis, comparison, synthesis, description and statistical-econometric methods. DOI: 10.5901/ajis.2016.v5n3p95

Microfinance and Poverty Alleviation in Southwest Nigeria: Empirical Evidence

In order to alleviate poverty and improve the living standard of the people of South-West Nigeria, it is imperative that micro/small financial services such as credit, insurance, money transfer, etc. are provided in order to engage them actively in productive activities. Globally, there are several failed policies by governments, particularly in Nigeria over the years aimed at poverty alleviation. This study examines microfinance scheme towards the dispersion of credit amongst the working poor; draws from the data collected from field survey and these were reported using tables, frequency counts and cross-tabulations to draw inferences and a loan demand model was specified and estimated using the Ordinary Least Squares (OLS) econometric technique.The study used cross-sectional data collected from selected respondents in selected areas of both the Lagos and Ogun States of Nigeria respectively. The study found that majority of the Microfinance banks in Nigeria are model after the Grameen Bank which is aimed at the poor and people with basic, little or no education and that loan demand is interest rate insensitive. Therefore, MFIs should design appropriate products that are flexible enough to meet the different needs of the poor for both production and consumption purposes. Besides, governments (local, state and Federal) should urgently tackle the infrastructural gaps such as electricity, water and efficient transportation system which impact greatly on the standard of living of the people.Int. J. Soc. Sc. Manage. Vol. 3, Issue-4: 256-266

The Objective Function of Government-Controlled Banks in a Financial Crisis

We present evidence that government-controlled banks (GCBs) significantly increased their lending to small and medium-sized enterprises (SMEs) whose main bank was a large bank in the 2007-09 financial crisis. Further analyses show that both the weak relationship between large banks and SMEs and the crowding out due to the loan demand surge among large corporations facing the securities market paralysis contributed to this phenomenon. The mixed Cournot oligopoly model, including a GCB, shows that the above finding regarding the weak relationship is consistent with the welfare maximization by a GCB rather than its own profit maximization.