Lending Strategy Research Articles

Lost in Translation: The determinants and the effect of soft information dispersion in bank lending

In this paper, we examine who holds the decision-making power for credit approval in small business lending; we also examine the determinants of shifting this power from a local bank branch to an upper organizational level. Because soft information is usually collected by local branches, shifting the decision-making power may lead to a loss of soft information because it is difficult to transmit soft information across organizational levels. We find that when the local bank operates with a relationship lending strategy, it tends to handle loan requests, and soft information loss is less likely to occur. We also find that the probability of losing the soft information is much higher when the duration of the relationship is shorter and when borrowers undertake the relationship with a greater number of banks. In particular, our findings suggest that information loss is linked to borrower risk, as risky loans tend to be evaluated centrally. Furthermore, we observe that the organizational level at which loan requests are handled has a significant effect on the approval/rejection of a loan request.

Analisa Faktor Internal Penyebab NPL Kredit Mikro: Studi Kasus PT BPR Wahana Sentra Artha Majalengka

The role of BPRs in providing capital assistance to MSME business units, still has to deal with the internal management of the bank's own management. This must be understood because one of the factors to assess the health of a BPR is to look at the NPL (Non- Performing Loan) ratio, calculated from the total loans that fall into the non -current category, divided by the total credit given. Where is the maximum ratio determined by Bank Indonesia, which is below 5%. This means that if a BPR has an NPL ratio above 5%, then it can be assumed that there is a failure in implementing an inefficient and ineffective lending strategy. Therefore, it is necessary to examine the factors that influence the high NPL of rural banks (BPR), especially from credit lending strategies. In addition, economic conditions and business competition and forecasting of future conditions, conduct training for AO to sharpen credit analysis, ensure that the process of submission and disbursement of credit quickly and easily provides various alternative options for debtors to pay their credit, providing standard procedure for granting credit, conducting a survey of the place of business against the submission of business credit. The research objective is to analyze 1) the influence of BP's internal conditions on the lending strategy. 2) Analyzing the effect of Credit Giving Strategy on Non -Performing Loans. The research method uses a survey method with a multiple linear regression approach to obtain information on the influence of both of these. The results of the study show that 1) the internal condition of the BPR has a positive and significant effect on the lending strategy (the condition of the organization within the organization and formally has direct and specific implications on BPR). 2) that the lending strategy has a negative and significant effect on NPL. The lending strategy applied by BPRs
 is a means to control the development of credit thrown into the market by the BPR.

The clustering analysis on data and lending strategy of supply chain with information asymmetry method

In this paper, a theoretical framework is proposed to analyze how trade credit effect bank credit in circumstance of supply chain. We constructed a model to describe information asymmetry among lender and borrower based on game theory and conducted numerical simulation to discuss risk contagion. The static comparison and numerical results illustrate that the loan interest in symmetric case is significantly lower than it in asymmetric case. Default risk of buyer increases the cost of borrower compared to the case when buyer pays for sure and massive trade credit associated with higher loan interest. However the impact on loan amount of credit risk and default risk is more complex. It turns out that information asymmetry can be seen as a moderating factor in the impact on loan amount of default risk and credit risk. Generally this study may not only bring some policy implications for banks to control credit risk along supply chain, but also shed lights in theoretical analysis of trade credit.

The Determinants and the Effect of Soft Information 'Loss' in Bank Lending.

In this paper, we examine who holds the decision-making power for credit approval in small business lending and the determinants of shifting this power from a local branch to an upper organizational level. Since soft information is usually collected by local branches, shifting the decision-making power may lead to a loss of soft information because it is difficult to transmit soft information across organizational levels. We discover that when the local bank operates with a relationship lending strategy, it tends to handle loan requests, and soft information loss is less likely to occur. Furthermore, we observe that the organizational level at which loan requests are handled has a significant effect on the approval/rejection of a loan request.

To Lend is to Own: A Game Theoretic Analysis of the E-Book Lending Market

ABSTRACTDigital forms of content have provided online retailers new ways of enhancing other business opportunities. E-book vendors such as Amazon introduced a fourteen-day lending program for its Kindle-linked e-books, banking on the e-book lending program to increase sales to consumers who appreciate the added utility from the new lending options. The benefits of such an e-book lending strategy can become significant as the number of e-book owners reaches a critical mass, creating a network effect. However, the strategy may involve risk because there is also the possibility of cannibalization of retailers’ print book. We investigate, in both monopolistic and duopolistic competition settings, whether and how an online retailer can benefit from introducing an e-book lending program and its effect on their pricing strategy and cannibalization. We also examine whether sequential release of print books and e-books in monopolistic settings will affect retailer’s revenue. Our study finds that in a monopoly setting, the retailer should implement the e-book lending strategy when the condition of network effect is satisfied. Our findings also suggest that retailers can use release time to minimize cannibalization in the case of sequential release. In addition, the e-book lending option benefits the retailer in a duopoly setting only when one retailer offers such a program; otherwise, the better-known retailer benefits more. Theoretical and practical implications for the management of different formats of content in various competition markets to sustain and expand business opportunities are discussed.

Branching, lending and competition in Italian banking

ABSTRACTWith the liberalization of legal barriers to the opening of bank branches in 1990, both market structure and competitive conditions in Italy changed profoundly as banks expanded their branching networks. This paper provides novel empirical evidence on how changes of the branch network structure at the province level affect the performance and lending activity of banks across the period 1993–2011. In particular, we adopt two modes of analysis. The first focuses on the impact of diversification strategies on performance, lending and funding strategies at the province level. The second one examines how the increase of big banks' local presence affects single-market bank performance and lending strategies. Our results show that geographical diversification strategies can reduce performance, the adjusted Lerner Index of banks and lending activities, but increase the Lerner Index in deposit markets. Furthermore, we find that the expansion of branches by large-medium sized banks in concentrated markets can reduce the Lerner Index for the deposit market and the amount of loans offered by single-market banks.

The Study on the Effect of Housing Price Change on Lending Strategy Behavior : Evidence from Crowding-Out Behavior in Korean Banks

The Study on the Effect of Housing Price Change on Lending Strategy Behavior : Evidence from Crowding-Out Behavior in Korean Banks

INFLUENCE OF COMMERCIAL BANKS’ CAPACITY BUILDING LENDING STRATEGY ON GROWTH OF MSES IN KENYA

Purpose: The purpose of the study was to establish the influence of commercial banks’ capacity building lending strategy on the growth of SMEs in Kenya.Methodology: The researcher used purposive sampling to select respondents. The sample size was comprised of 352 respondents. The study used questionnaires to collect data from the field. Both quantitative and qualitative data gathered was coded and analyzed using Statistical Package for Social Sciences (SPSS) computer software. Descriptive statistics was used to analyze the data in frequency distributions and percentages which were presented in tables and figures. Inferential statistics were used to analyze qualitative data.Results: The study found out that commercial banks’ capacity building have a positive and significant effect on MSEs growth. (r=0.656, p=0.001).Unique Contribution to Theory, Practice and Policy: The study recommends for commercial banks to train their employees on how to handle clientele needs. Commercial banks need to embark on major training programmes and address their efforts to professionalize SME account managers. In fact, bank staffs dealing with SMEs need a sound knowledge of entrepreneurs and their businesses in order to develop an affinity with their clients and offer them solutions adapted to their needs. The actions which banks need to take include a better selection of new account managers for SMEs. They need to look for candidates with an adequate background and experience in small business or with entrepreneurial skills, who can be flexible and sensitive to SMEs issues.

THE INFLUENCE OF COMMERCIAL BANKS’ TECHNOLOGICAL INNOVATION LENDING STRATEGY ON THE GROWTH OF SMES IN KENYA

Purpose: The purpose of the study was to establish the influence of commercial banks’ technological innovation lending strategy on the growth of MSEs in Kenya.Methodology: The researcher used purposive sampling to select respondents. The sample size was comprised of 352 respondents. The study used questionnaires to collect data from the field. Both quantitative and qualitative data gathered was coded and analyzed using Statistical Package for Social Sciences (SPSS) computer software. Descriptive statistics was used to analyze the data in frequency distributions and percentages which were presented in tables and figures. Inferential statistics were used to analyze qualitative data.Results: The study found out that commercial banks’ technology and innovation have a positive and significant effect on MSEs growth (r=0.505, p=0.023).Unique Contribution to Theory, Practice and Policy: The study also recommended that commercial banks need to adopt technological innovation strategies so as reach more MSEs in terms of credit and thus enhancing its growth.

Pyramidal group structure and bank risk in Thailand

This paper investigates how banks and finance companies operate in business groups. Using uniquely detailed ownership data from Thailand, we find that the controlling shareholders extensively use pyramids to control banks and finance companies and assign different lending strategies across pyramidal tiers. Lower-tier banks tend to extend loans more aggressively and perform more poorly, while upper tier banks carry out more profitable investments. After the crisis hit, upper-tier banks survived and almost all lower-tier banks went bankrupt. Our results suggest that the multilayer organizational structure of bank ownership can affect a bank’s lending behavior and its resistance to economic shocks.

An Indexation System for Assessing Emerging Chinese Bank Competitiveness: The Case of Huaxia Bank

A 2010 banking survey of 42 foreign bank executives by Price Waterhouse Coopers ranked competition from “domestic” Chinese banks as their primary concern. This outranked the “regulatory environment” which had been number one for the previous two years. Several reasons were cited by foreign bank managers but three stand out: (1) declining market share for foreign banks due to reduced number of multinationals doing business in China, (2) foreign banks reluctance to lend locally due to the global economic slowdown, (3) the aggressive lending strategies of Chinese banks. This paper focuses on the new reality of contemporary Chinese banking practice. We believe Chinese banks are learning and adapting. They are gaining expertise in a wide array of bank operations such as asset management, branching, securities, leasing and many more. To better understand the nature and context of growing Chinese bank competitiveness, we introduce and apply the concept financial “econiche”. Financial econiche refers to the learning and adapting that takes place in a specific financial “ecological” surrounding with attention paid to the macroeconomic need for harmonious development. Econiche theory borrows heavily from similar ideas in the natural world. We construct an evaluation indexation system based on the econiche theory, and use Huaxia bank as a case study.

The African Development Bank and infant mortality: A cross-national analysis of structural adjustment and investment lending from 1990 to 2006

We conduct a cross-national analysis to examine the effects of different forms of African Development Bank (AfDB) on infant mortality. We analyze data on 31 countries from the period 1990–2006 using a two-way fixed effects regression model. The results of our analysis indicate that Sub-Saharan African nations receiving an AfDB structural adjustment loan are associated with increased infant mortality compared to nations that do not receive such a loan, consistent with existing literature drawn from dependency theory. We also evaluate a second hypothesis that AfDB investment loans in the health sector will be associated with decreased infant mortality, and the results of our analysis confirm this as well. We conclude by highlighting the contradictory effects of these two lending strategies on infant mortality and the theoretical implications that emerge.

Optimal group size with joint liability group lending strategy

Purpose – This paper aims to offer a theory on optimal group size. To overcome the problems of institutional credit facilities to the poor and marginal people, Joint Liability Group Lending (JLGL) is often considered as a better option. However, the literature in the field is surprisingly silent about the issue of group-size. This paper tries to fill the vacuum in a theoretical framework. Design/methodology/approach – Using a standard theoretical model, this paper shows that even with costless peer monitoring, there exists an upper bound on the size of group, and this upper bound is exactly pinned down by the strength of the social sanction. Findings – This paper shows that under reasonable specification of effort cost, as group size increases, both optimal cooperative effort level and the deviation incentive from that effort level rise monotonically for any individual borrower. Thus, given the strength of social sanction, the rising incentive for deviation uniquely determines the optimal group size even in absence of free riding in peer monitoring. Research limitations/implications – The theoretical results derived in the paper require empirical verification which is, however, tricky because of the problems associated with quantifying social sanctions. Practical implications – This paper argues that the group size should be larger in more integrated communities which have better social cohesion among its members. Originality/value – This paper shows that, for a given extent of joint liability the borrowers need to bear, the group size in joint liability group lending should be designed according to the strength of social sanction prevailing in the society to achieve social efficiency.

Beyond carbon pricing: The role of banking and monetary policy in financing the transition to a low-carbon economy

It is widely acknowledged that introducing a price on carbon represents a crucial precondition for filling the current gap in low-carbon investment. However, as this paper argues, carbon pricing in itself may not be sufficient. This is due to the existence of market failures in the process of creation and allocation of credit that may lead commercial banks — the most important source of external finance for firms — not to respond as expected to price signals. Under certain economic conditions, banks would shy away from lending to low-carbon activities even in the presence of a carbon price. This possibility calls for the implementation of additional policies not based on prices. In particular, the paper discusses the potential role of monetary policies and macroprudential financial regulation: modifying the incentives and constraints that banks face when deciding their lending strategy — through, for instance, a differentiation of reserve requirements according to the destination of lending — may fruitfully expand credit creation directed towards low-carbon sectors. This seems to be especially feasible in emerging economies, where the central banking framework usually allows for a stronger public control on credit allocation and a wider range of monetary policy instruments than the sole interest rate.

Commercial bank financing for micro-enterprises and SMEs in Mexico

This article examines commercial bank lending strategies for micro-enterprises and small and medium-sized businesses (SMEs) in Mexico, and the factors that promote or hinder lending in this segment. With this in mind, in 2011 a detailed survey was conducted of commercial banks operating in Mexico. Although credit to micro-enterprises and SMSs still represents a small share of the loan portfolio, the survey results point to growing interest in broadening it. Three different business models were identified, with major differences in strategies for offering. financial services to this segment of enterprises. The greatest barriers to increasing the credit supply are lack of information, creditor protection failures, informality, and the changes and disruptions that commercial banking has experienced over the past three decades.

Family Business Groups and Organizational Structure: A Study of Bank Pyramidal Ownership in Thailand

This paper investigates how banks and finance companies operate in a family business group. Using uniquely detailed ownership data from Thailand, we find that the controlling families extensively use pyramids to control banks and finance companies and assign different lending strategies across pyramidal tiers. Lower-tier banks tend to extend loans more aggressively and perform more poorly, while upper tier banks carry out more profitable investments. After the crisis hit, upper-tier banks survived and almost all lower-tier banks went bankrupt. Our results suggest that the multilayer organizational structure of bank ownership can affect a bank´s lending behavior and its resistance to economic shocks.

Does a leverage ratio requirement increase bank stability?

Basel III has introduced a non-risk-weighted leverage ratio requirement (LRR) which complements the internal ratings based (IRB) capital requirements. It provides a backstop against model risk which arises if some loans get incorrectly rated and become toxic. We study the effects of the LRR on lending strategies and its implications for banks’ stability. We show that the LRR might induce banks with low-risk lending strategies to diversify their portfolios into high-risk loans until the LRR is no longer the binding capital constraint on them. If the LRR is lower than the average bank’s IRB requirement, the aggregate capital costs of banks do not increase. However, because the diversification makes banks’ portfolios more alike the banking sector as a whole may become more exposed to model risk in each loan category. This may undermine banking sector stability. On balance, our calibrated model motivates a significantly higher LRR than the current one.

Does Securitization Support Entrepreneurial Activity?

This paper investigates the impact of financial innovations, in particular loan securitization on entrepreneurial activity in the U.S. We suggest a credit supply channel through which banks’ loan securitization can contribute to the development of entrepreneurship. We provide supportive evidence that securitization alters both small and large banks’ small business lending strategy and that banks’ overall credit supply to small businesses increases with the degree of securitization. Moreover, the results show that active use of securitization by banks benefits entrepreneurship in increasing new business creation in the U.S. We also find that bank securitization has a positive impact on entrepreneurship activity during both economic downturn and normal times.

Starved for Credit? Bank Lending Strategies and Constraints

AbstractMergers and acquisitions (M&As) often require financing and bank loans. But the problem that corporations face in obtaining loans hasn't been much relieved in the years since the 2008 credit crisis. The author of this article, a financial consultant, reports that clients are constantly complaining about the difficulty in obtaining financing. And many clients blame the banks for their plight. This article discusses the complex issues impacting this situation and strategies that corporate treasurers can take to cope with the problem. © 2013 Wiley Periodicals, Inc.

Banks and Regional Development: An Empirical Analysis on the Determinants of Credit Availability in Brazilian Regions

Crocco M., Faria-Silva F., Paulo-Rezende L. and Rodríguez-Fuentes C. J. Banks and regional development: an empirical analysis on the determinants of credit availability in Brazilian regions, Regional Studies. This paper studies the influence that liquidity preference and bank lending strategies might have played in the determination of bank credit availability in Brazilian regions during the period 1999–2008. It puts forward the argument that in remoter and less developed regions, the liquidity preference of agents is higher and fluctuates along business cycles, reducing regional credit availability in downturns (due to both a contraction in supply and the demand for credit in remoter regions), and producing a more unstable pattern for credit availability alongside business cycles. Empirical evidence for the Brazilian regions during the period 1999–2008 is provided to support this view.