Growth Of Bank Lending Research Articles

Funding liquidity on bank lending growth: The case of India

PURPOSE: By bridging the funding gap between funding surplus units and deficit units, financial institutions like banks play a crucial role in fostering economic development in a nation. Banks provide the crucial task of organizing individual and institutional resources and directing them to those prepared to engage in business ventures or other productive uses. The aim of this paper is to evaluate the relation between funding liquidity and bank lending growth (BLG). An empirical analysis between bank capital and the funding liquidity ratio on bank lending growth (BLG) using the generalized method of moments (GMM) approach for the sustainable business has been not identified before. Therefore, this study tries to fill this gap. METHODOLOGY: The data was collected from 59 commercial banks in India from 2010 to 2022 which comprises of 21 public sector banks, 18 private sector banks, and 20 foreign banks. The GMM approach was what we employed. This strategy is typically utilized in situations in which the distribution of the data is uncertain and there is a concern with over identification. GMM offers a consistent, asymptotically normal, and efficient estimator in comparison to all of the other estimators that merely use the information presented by the moment conditions. FINDINGS: Findings suggests that there is a significantly negative influence of bank capital and funding liquidity on bank lending. This indicates that higher capital can limit the effect of funding liquidity on the growth of the banks’ loans, therefore the findings are consistent with the hypothesis that higher capital can lower the effect of funding liquidity. This study’s model also reveals the significantly favorable impact that funding liquidity has on the expansion of banks’ loan portfolios, which ultimately results in a more sophisticated increase in the growth rate of bank lending. IMPLICATIONS: This can be an importance piece of information for policy makers in taking accurate decisions to induce the BLG in the presence of an interactive association of funding liquidity and the lending growth rate at different capital levels. We found that the banks’ lending growth rate is significantly influenced by its past values with a significant p-value of less than 1%. The findings imply that capital funds and liquidity funds support the BLG rate in India by strengthening and neutralising the risk involved and absorbing the losses generated by stressed assets. ORIGINALITY AND VALUE: This study makes a significant contribution to the creation of a more in-depth understanding of the potential relationship between banks’ funding liquidity, capital funds, and bankers’ lending behavior, in particular with reference to developing market nations like India.

The Collateral Channel and Bank Credit

Our paper studies the role of the collateral channel for bank credit using confidential bank-firm-loan data. We estimate that for a 1 percent increase in collateral values, firms pledging real estate collateral experience a 12 basis point higher growth in bank lending with higher sensitivities for more credit constrained firms. Higher real estate values boost firm capital expenditures and lead to lower unemployment and higher employment growth and business creation. Our estimates imply that as much as 37 percent of employment growth over the period from 2013 to 2019 can be attributed to the relaxation of borrowing constraints.

EMPIRICAL ANALYSIS OF CAPITAL, FUNDING LIQUIDITY AND BANK LENDING IN EMERGING MARKET ECONOMIES: AN APPLICATION OF SYSTEM GMM APPROACH

Funding Liquidity is the key component of loanable funds of the bank. Sufficient liquidity also boosts banks’ ability to pay-off its dues timely but at the same time it has been proven to be a significant determinant of various historical banking sector crises all over the world. However, there exists very weak empirical evidence suggesting a clear relationship between funding liquidity and bank lending growth (BLG). We have attempted to address this gap by empirically testing the impact of bank capital, funding liquidity and their interaction variable on the BLG using a dataset of 59 commercial banks operating in India for the period 2006 to 2018 consisting of 21 public sector banks, 18 private sector banks and 20 foreign banks. An attempt has been made to examine the interactive impact of the bank capital and funding liquidity ratio on BLG rate using system GMM approach. Our model reveals a positive and significant impact of capital funding, indicating induction of capital in bank leads to higher growth in BLG rate. The results also suggest that the interaction impact of funding liquidity and bank capital on the bank lending growth is significantly negative. Further, a higher capital induction neutralises the overall impact of funding liquidity on the bank lending growth. The study provides implications for academicians and policy makers to comprehend the role of funding liquidity.

Income smoothing through loan loss provisions in south and Eastern European banks

This study provides empirical evidence on income smoothing from the banking sector in nine South-Eastern Europe (SEE) countries for the period 2005-2014 by applying a number of methodological approaches. First, by using a sample of 321 banks this paper confirms our first hypothesis that banks in the SEE region use loan loss provisions (LLPs) to smooth their incomes. Second, by dividing the loan loss provision into its two components (discretionary and non-discretionary,) the study provides new evidence on the effects of loan loss provisions components on growth in bank lending. The results clearly prove our second hypothesis that the components of LLPs do matter on growth in bank lending. Third, this paper estimates the use of loan loss provisions for capital management by banks. The empirical results do not support the hypothesis of capital management for SEE banks. The novelty of this paper, unlike other works, is the inclusion of SEE countries.

The impact of voluntary capital adequacy disclosure on bank lending and liquidity creation

AbstractUsing a sample of 40 US banks that make voluntary disclosure of capital adequacy, we investigate the extent to which such voluntary disclosures influence growth in bank lending and liquidity creation. Combining two theories linked to the performance effects of (i) voluntary disclosure and (ii) leverage adjustment, we document novel evidence in favour of our hypotheses: a positive relation between voluntary bank disclosure and bank lending (liquidity creation). Our analysis provides some evidence that these positive linkages occur through a cost of capital channel.

Determinants of Bank Lending in Nigeria

The willingness of commercial banks to provide loans is determined by various factors. In this regard, this paper provides empirical evidence on determinants of bank lending in Nigeria. The parsimonious model of this study investigates the impact of growth in loan-to-deposit ratio, growth in inflation, growth in broad money, and growth in bank capital on growth in bank lending using annual data from 1961 to 2016. This study adopts the autoregressive distributed lag (ARDL) bounds testing approach and Granger causality tests to investigate the relationship and direction of causality among the variables, respectively. The Granger causality tests show that growth in broad money Granger-causes growth in bank lending, while there is no causality from other explanatory variables to bank lending in Nigeria. Also, this study shows that growth in bank lending Granger-causes growth in loan-to-deposit ratio and growth in inflation in Nigeria. Thus, this paper argues that commercial banks in Nigeria exhibit stern concern for their liquidity and capital adequacy positions while acting as financial intermediaries. Additionally, this paper argues that the Central Bank of Nigeria (CBN) possesses “paper-based” independence.

PENGARUH DANA PIHAK KETIGA, RETURN ON ASSET, DAN SUKU BUNGA KREDIT TERHADAP PENYALURAN KREDIT PADA BANK PERKREDITAN RAKYAT DI KOTA DENPASAR

The growth of bank lending in Indonesia has fluctuated every year. This is caused by several factors that affect lending. This study aims to determine the effect of DPK, ROA and credit interest rates on lending at BPR Denpasar. The population in this study is the BPR Bank, amounting to 13 companies. The sampling technique used was purposive sampling which is a type of sample selection with a specific purpose with the criteria that have been set and get 7 sample companies that are included with a period of 5 years. The data analysis technique used is multiple linear regression with the application of SPSS for windows. The results of the analysis show that DPK, ROA and credit interest rates together have a positive and significant effect on lending at BPR banks.

The Impact of Monetary Policy and Housing-Purchase Restrictions on Housing Prices in China

ABSTRACTThis paper examines the level and volatility effect of monetary policy on housing prices in China utilizing a novel set of housing price indices constructed by (Fang, H., QuanlinGu, W. X., & Zhou, L.-A. (2015). Demystifying the Chinese housing boom. NBER Macroeconomics Annual 2015, Volume 30. University of Chicago Press.). We find that in the long-run, average housing prices react positively to inflation, money supply and bank lending growth, and negatively to the reserve requirement ratio and benchmark lending rate. Housing prices in Tier 1 cities respond more sensitively to monetary shocks relative to Tier 2 and 3 cities, possibly due to surging demand and limited supply under housing-purchase restrictions (HPR). We further study the volatility effect of monetary shocks using the GARCH model and find that the benchmark lending rate, reserve requirement ratio and money supply growth have strong negative impact on the volatility of housing price growth. Our benchmark results remain robust after incorporating the HPR policy variable in the estimation, with a significant negative effect of HPR on housing price growth in Tier 1 and Tier 2 cities. Lastly, we conclude with recommendations on future monetary policy design and implementation, with a specific focus on the heterogeneous characteristics of China’s housing market.

Alignment of Interests, Voluntary Disclosure and Bank Lending

Firms may commit to provide more information than mandated by regulation with an attempt to improve their own performance. A widely-held view is that financial firms are less likely to voluntarily disclose to avoid adverse investment consequences. Using a hand-collected sample relating to voluntary disclosure of banks in the U.S. in 2014, we show that those banks which provide more than the minimum required information on their capital adequacy, have lending growth that is, on average, higher than that of non-disclosers. Furthermore, those banks where there is greater alignment of managerial interests with shareholder's interests are more likely to disclose voluntarily. Overall, our findings suggest that voluntary disclosure can have a causal effect on the growth of bank lending, which is enabled through the cost of capital channel. Prominently, disclosing banks increase their capital.

Do better-capitalized banks lend less? Evidence from European banks

We examine the link between bank capital and earning assets in five European countries during 1989–2012 using panel cointegration techniques. We find that higher bank capital is associated with a higher volume of earning assets, including bank loans. However, we also find some evidence that bank capitalization would impact negatively on the growth of bank lending at capital-to-asset ratios above 15%, which is below the ratio mandated for some UK-headquartered banks in the UK's 2013 Bank Reform Act.

The Interaction of the Banking and Real Sector of the Economy of Kazakhstan

The article describes the main trends in bank lending to the real sector of the economy in the post-crisis period under the influence of certain macroeconomic factors. The authors made a comparative analysis of indicators of development of Kazakhstan and other CIS countries on the basis of statistical data of the IMF for the period of 2009-2013. During the period analyzed in the study group of countries was the resumption of economic growth, decline in the annual inflation rate as a result of ongoing programs of restructuring the economy and the financial sector. Starting in 2011, Kazakhstan has become a positive trend of growth in bank lending. However, the credit activity of banks after the crisis is still not restored. The research identified the main obstacles to strengthening the interaction of credit banking and real sectors of the economy, such as with an unbalanced lending, short-term funding of banks, the high concentration of credit risk in the real economy, the inefficient use of credit, high credit cost and others. Proposed some measures to improve the credit activity of the second-tier banks, such as interest rate subsidies to fund the priorities of socio-economic development or administrative restrictions of rising interest rates, the provision of state guarantees for loans to the real sector of the economy, the decline in non-performing assets in the balance sheets of banks, the development of the regional elements of the banking system, etc. DOI: 10.5901/mjss.2015.v6n3s3p313

Effects of loan loss provisions on growth in bank lending : Some international comparisons

Un système de provisionnement dynamique représente un des instruments à la disposition des régulateurs bancaires permettant d’introduire de la contra-cyclicité dans la réglementation prudentielle. Nous cherchons dans cet article à évaluer l’efficacité potentielle d’un tel instrument. Pour cela, nous estimons pour différents groupes de pays si les pratiques actuelles de provisionnement amplifient les fluctuations sur le marché du crédit. Nos résultats montrent que les pratiques de provisionnement ex post amplifient le cycle du crédit aussi bien dans les pays développés que dans les pays émergents. L’ampleur de cet effet est cependant plus prononcée dans les pays émergents. Classification JEL : G21.

Effects of loan loss provisions on growth in bank lending: Some international comparisons

AbstractA dynamic provisioning system is one of the instruments that regulators could use for introducing counter-cyclicality into prudential regulation. The potential effectiveness of such instrument depends on how far actual backward-looking provisioning practices exacerbate growth in bank lending. We therefore investigate whether backward-looking provisioning practices amplify growth in bank lending and, if such an effect exists, whether there are differences in its magnitude across countries. Our results show that backward-looking provisioning systems exacerbate banks' lending fluctuations in both developed and emerging countries, but with a stronger impact for emerging countries.

Effects of Loan Loss Provisions on Growth in Bank Lending: Some International Comparisons

A dynamic provisioning system is one of the instruments that regulators could use for introducing counter-cyclicality into prudential regulation. The potential effectiveness of such instrument depends on how far actual backward-looking provisioning practices exacerbate growth in bank lending. We therefore investigate whether backward-looking provisioning practices amplify growth in bank lending and, if such an effect exists, whether there are differences in its magnitude across countries. Our results show that backward backward-looking provisioning systems exacerbate banks' lending fluctuations in both developed and emerging countries, but with a stronger impact for emerging countries. These results support the idea that countercyclical tools based on capital buffers might not be sufficient to dampen the cyclicality of bank lending, especially in emerging countries, and the implementation of a forward-looking provisioning system might be an important mandate.

The Relationship between Mortgage Markets and House Prices: Does Financial Instability Make the Difference?

During the late 1990s and up to 2007, several countries experienced sharp increases in house prices. These episodes are usually mentioned among the causes of the world’s recent economic and financial turmoil. The dramatic growth in bank lending during this period has been held broadly responsible for these market dynamics. However, the empirical relationship between mortgage credit and house prices remains largely unexplained. This paper analyzes the relationship between house prices and mortgage credit in Spain, where house prices and mort­gage credit have experienced high growth in recent years prior to the financial crisis. We employ a quarterly database from 1988Q4 to 2008Q4. Using cointegration analysis and vector error–correction (VEC) models, we find that both house prices and mortgage credit interact in the short and long run. The results also suggest that a regime shift in mortgage lending occurred in 2001 in Spain — where mortgage credit securitization substantially grew — that increased the economic significance of mortgage lending’s impact on house prices.

The decline of bank finance for SMEs in APEC

Banks are still the single largest supplier of debt funds to SMEs in most developed economies. This paper shows, on the basis of publicly available data for APEC economies, that the real growth of bank lending to SMEs appears to be negative or to have declined in almost all economies over the decade from 1997. Prior to 1997, the real rate of growth of bank finance to SMEs was positive. By contrast, throughout the period 1994-2007, the growth of real lending to large firms has usually been positive and growing. The paper explores these trends in detail and reaches the conclusion that there has been a decline in the availability of bank finance to SMEs in the developed economies in absolute and real terms. The paper also examines some possible reasons for this phenomenon and discusses the implications. It concludes that the problems banks face meeting BIS Basle II requirements, in accounting for intangibles, and thus assessing collateral, is a possible contributor. Finally, the paper suggests ways that the World Bank and Bank of International Settlements (BIS) could make more effective use of available data from banks to better understand the phenomenon.

The Bank Lending Channel Transmission of Monetary Policy in the EMU: A Case Study of Portugal

This paper confirms the importance of bank performance to the credit-lending channel of monetary policy in the countries of the EMU and particularly in Portugal during recent years. The paper’s main innovations are (1) its use of macro and microeconomic statistical data; (2) the introduction of three calculated bank-performance indicators—asset structure, conversion of clients’ resources into credits and financial margins—into an adaptation of the Bernanke and Binder model; and (3) the use of panel data estimations not only to demonstrate the importance of the bank lending channel, but also to analyse the effects of the calculated indicators in bank-lending growth.

The Political Geography of International Lending by Private Banks

Bank lending to foreign governments has long been an agent of foreign policy, and for a Less Developed Country (LDC) a private bank loan confers international respectability. After 1970 private bank loans became the largest source of financial inflows into all such countries, except the very poorest. This growth in bank lending was in part a recycling of the large surpluses of oil-exporting developing countries through the sharp increases in oil prices during the decade. More importantly, it arose from the economic and political exigencies of the United States in maintaining leadership of the noncommunist world. American banks have thus dominated foreign lending throughout, but have increasingly been challenged by European, Japanese, and other foreign banks. The geographical distribution of private bank loans closely reflects the economic and geopolitical interests of their domestic governments; American loans have gone mainly to Latin America and to 'newly industrailizing countries' (NICs) in Asia, 'middle-income' countries with high annual growth rates of GNP. Rival banks have broadly pursued a similar strategy, so that such borrowers have by far the largest debt service obligations among developing countries, and some are in serious danger of default. Nevertheless, the loans of non-American banks show both vestiges of older commercial or imperial interests, and new patterns unrelated to the past.