Loan Characteristics Research Articles

An Empirical Study on Determinants of Loan Repayment Behaviour of SMEs Towards Commercial Banks

India, as a developing economy even after five decades of planning, still has a long way to catch up with the advanced economies of the globe. The goal may be distant, but surely, the time needed to reach can be reduced by accelerating the pace of development. One way of doing this is by the development of industrial and business ventures. There exists a positive relationship between the growth of an economy and the growth of small and medium enterprises (SMEs). SMEs play a vibrant role in the development of an economy. Access to the formal source of credit by entrepreneurs is essential in a growing economy. Lending to SMEs is a risky activity for the banks as repayment of these loans are less guaranteed. The research article attempts to analyse the factors influencing the loan repayment behaviour of SMEs towards commercial banks. Data are collected using the convenience method of sampling from 80 registered SMEs belonging to the manufacturing and service sectors in the Bangalore region, and data are analysed using statistical tools such as correlation and logit regression analysis, conclusions are drawn based on these findings. The study reveals that characteristics of loan and lender influence the repayment to the maximum extent. The findings are helpful for commercial banks in redesigning suitable policies and schemes to reduce loan defaults.

Loan Characteristics as Predictors of Default in Commercial Mortgage Portfolios

This paper examines the role of loan characteristics in mortgage default probability for different mortgage lenders in the UK. The accuracy of default prediction is tested with two statistical methods, a probit model and linear discriminant analysis, using a unique dataset of defaulted commercial loan portfolios provided by sixty-six financial institutions. Both models establish that the attributes of the underlying real estate asset and the lender are significant factors in determining default probability for commercial mortgages. In addition to traditional risk factors such as loan-to-value and debt servicing coverage ratio lenders and regulators should consider loan characteristics to assess more accurately probabilities of default.

Better Housing: FHA Property Improvement Loans

The National Housing Act of 1934 is most well-known for creating the Federal Housing Administration (FHA) to insure home mortgages; however, the first section of the Act also covers insurance of financial institutions against losses on loans and advances of credit “for the purpose of financing alterations, repairs, and improvements upon real property.” Title I was at the heart of a New Deal initiative to modernize housing as both a means to improve the welfare of American households as well as employ surplus labor in home construction and repair. It also introduced commercial banks to consumer instalment lending, which revolutionized household finance. FHA endorsed more property improvement loans per year than home mortgages for its first 35 years. And the cumulative number of loans insured under Title I was greater than the more famous Section 203B program until the financial crisis of 2008. Yet the importance of Title I is often overlooked. “Historical scholars have argued that FHA programs were self-validating: by encouraging the neglect of older homes and neighborhoods, they made filtering inevitable, and with it the decline of older neighborhoods in central cities. There is some truth to this assessment of federal policy. However, and although the fact has been widely ignored, from the beginning the FHA also sought to improve existing homes and neighborhoods” (Harris 2009, p. 392). In part, this may be because the Title I program has not kept pace with changes in the financial industry, causing disbursements to tumble and the program to drift into obscurity. This paper briefly describes FHA’s Title I property improvement program, including its history and underwriting requirements. Using administrative data, the paper examines variation in interest rates across loan and borrower characteristics. In particular, I estimate the rate premium associated with unsecured lending during the Great Recession. I further estimate the likelihood of default and insurance claim amount given default. The results could be used to automate credit underwriting and facilitate modernization of property improvement financing.

Critical risk factors of the project finance loan spread in the infrastructure sector: Experience from the ASEAN countries

This paper finds that in ASEAN-4, the micro loan characteristics: loan amount and LIBOR whilst the macro characteristics: inflation, net export and GDP growth influence the loan spread in the project finance. However, simultaneously at the country level, the determinants of the loan spread are distinctive to each country’s infrastructure industry characteristic. The paper’s main contribution relates to the determinants of the project finance loan spread at the country level and regional level, ASEAN-4. The purpose of this paper is to fathom the critical risk factors behind the project finance loan pricing differential across the ASEAN-4 countries. Hence, the policy makers, project developers and lenders can have a better understanding of the drivers behind the project finance loan spread pricing. The study adopted an ordinary least square (OLS) regression methodology and collected data from ASEAN-4 countries consisting of Indonesia, Malaysia, Philippines, and Thailand.

Research on Interest Rate Risk of Housing Mortgage Loan Based on Computer Simulation.

In recent years, with the rapid increase of the business volume of housing mortgage loans of commercial banks, the risk of prepayment is increasingly exposed. Prepayment will have a great impact on the duration and convexity of housing mortgage loans of commercial banks and then bring difficulties to the asset liability management of banks. Therefore, empirical research on the changes of duration and convexity of housing mortgage loans caused by prepayment when the market interest rate changes is of great significance for commercial banks to manage interest rate risk exposure. Based on the analysis of the option characteristics of prepayable housing mortgage loan, the CIR model with GARCH(1, 1) is selected to describe the interest rate change path, and the computer simulation method is used to calculate OAS and then calculate the effective duration and effective convexity of housing mortgage loan under different prepayment rates, so as to understand the interest rate risk of housing mortgage loan in the presence of embedded option.

Оцінка умов укладання між пов'язаними особами угод купівлі-продажу кредитних портфелів як інструмент пруденційного нагляду національного регулятора

The article proposes to use the market value of the loan portfolio as a criterion for compliance with the terms of its purchase and sale agreements, between related parties, the normal market and use it as a tool in the supervision of the national regulator. The developed methodological support for assessing the compliance of the conditions for concluding purchase and sale agreements of loan portfolios, between related parties, normal market conditions is based on the characteristics of the elements, properties and features of valuation as an economic category. The proposed algorithm for assessing the terms of conclusion between related parties of purchase and sale of loan portfolios for their compliance with normal market conditions allows to take into account the essential characteristics of loans and complies with current legislation of Ukraine governing banking. On the example of contingent portfolios of cash and consumer loans, the stages of forecasting cash flows from the payment of outstanding balance of principal, interest, commissions and other payments on debt service, as well as income from the sale of default loans are disclosed.

The role of bankers in the U.S. syndicated loan market

I construct a novel dataset of individual bankers in the U.S. syndicated loan market to analyze the impact of bankers for the largest, most transparent borrowers. Bankers exhibit time-invariant preferences for specific loan characteristics, or styles. In addition, exploiting within-borrower variation in personal relationship strength from banker turnover, I find that stronger relationships lead to significantly lower interest rates. This effect is stronger if borrowers lack a credit rating or issue less frequent and shorter horizon management reports. Relationship loans are associated with fewer bankruptcies and fewer favorable modifications in renegotiations.

The effect of loan granted factor on peer-to-peer lending (funded loan) in Indonesia

This study aims to determine whether the loan granted factor can affect peer-to-peer lending in Indonesia. The factors investigated in this research are the loan amount, loan period, interest rate, gender, and loan history using the data from registered and licensed peer-to-peer lending by the Financial Services Authority or Otoritas Jasa Keuangan (OJK) on November 2019. By examining 1,006 loans, the analytical method used is binary logistic regression with a significance level of alpha 0.05. The results of this research are loan amount, loan period, and loan history have the strongest impact on borrowers’ loan funding decision, suggesting that these loan characteristics can signal information that standard measures are used for loan funding. However, interest rate and gender have no significant effect on loan granted. Overall, loan funding decisions are based on proper and relevant signals given by loan characteristics.

자산심사제도 도입 전후 내집마련 디딤돌 대출의 특성 변화 분석

자산심사제도 도입 전후 내집마련 디딤돌 대출의 특성 변화 분석

Default Probability by Employment Status in South Korea

This paper analyzes the factors behind the loan defaults of borrowers by their employment status (whether they are self-employed) using the Korea Consumer Credit Panel data held by the Bank of Korea, and estimates the probability of default and the fragility of the financial sector. This is done using the concept of exposure at default for individuals. Using individual data on loans and delinquencies, we divide the spreads of personal loans into spreads determined by loan characteristics and spreads based on credit ratings to examine how these factors determine the probability of default among self-employed and non-self-employed borrowers. We find that the marginal effect of the spread based by the characteristic of loans and the borrowers’ credit ratings on the probability of default is greater to the self-employed borrowers, as compared to the non-self-employed borrowers. Especially, the effect of the spread by credit rating is stronger than the other. When we measure the vulnerability of financial institutions in terms of households’ probability of default, the institutions’ exposure to default of the self-employed affects to institutions’ vulnerability more than those of the non-self-employed. Therefore, more attention should be paid to the connectedness of financial institutions to household debt, and, in particular, the financial status of the self-employed.

The Effect of Personal Characteristics, Loan Characteristics and Interest Rate Characteristics on the Delinquency Possibility

The Effect of Personal Characteristics, Loan Characteristics and Interest Rate Characteristics on the Delinquency Possibility

Determinantes de Inadimplência e de Recuperação de Crédito em um Banco de Desenvolvimento

Considering the latest financial crises and because of the increasingly importance of credit risk management to economic actors and academics, this research aims to identify the conditioning factors of non-performing loans and credit recovery of a development bank portfolio. We analyzed data of 20.241 loans granted to micro and small enterprises between November 2009 and November 2014. To achieve the research goals, non-performing loan and loan recovery models were estimated by logistic regression. The results point out the significant effects on determining non-performing loans and/or credit recovery of (i) individual characteristics, such as firm’s age, (ii) loan characteristics, like the financial product and the installment payment period, and (iii) lending relationship, such as the number of years of relationship with the development bank. Contrary to the arguments of part of the literature, the results do not suggest any reverse relation between non-performing loans and credit recovery explanatory variables, which could enhance the loss from credit risk misspecification.

Short-selling risk in Australia

We confirm the negative relation between short-selling risk and stock returns in the US. We estimate a measure of dynamic short-selling risk in Australia and find a similar negative relation in Australia. The negative relation is more pronounced amongst small Australian stocks, but is absent in large Australian stocks. Australian stocks have lower equity loan supply and short interest, but higher equity loan fees and longer loan length than US stocks. The higher variation in equity loan utilization rate and loan characteristics in Australian stocks possibly contribute to their higher short-selling risk compared to their US counterparts.

Guaranteed Crowdlending Loans: A Tool for Entrepreneurial Finance Ecosystem Sustainability

Crowdlending is a disruptive financial tool that has been increasingly requested by SME ’s to cover their capital needs. However, the growth of this technological development is being limited by the existing risk of default resulting in loss for lenders. To deal with this, funding platforms have started to offer more sustainable products such as the guaranteed loans. These special loans are backed by a Mutual Fund so Lenders minimise the risk of suffering the consequences of a default. This study aims to investigate the importance of factors related to loan characteristics, investor type and borrower’s characteristics, in the crowdlending campaign success. To perform the analysis, we use Partial Least Squares (PLS) technique over a sample of 196 guaranteed loans from the pioneer platform in Spain offering that type of loans (MytripleA). Results indicate that the characteristics with greater influence in guaranteed crowdlending success are those related to the investors and the loans, while SME’s factors seem not to have any impact. We consider that our results are interesting for both the funding platforms and the SME’s seeking for funds.

Human vs. Machine: Underwriting Decisions in Finance

Using a randomized experiment in auto lending, we show that algorithmic underwriting outperforms the human underwriting process, resulting in 10.2% higher loan profits and 6.8% lower default rates. The machine performance is more stable across various risk dimensions and loan characteristics, whereas the performance of human underwritten loans largely declines for riskier and more complex loans. Moreover, the performance difference is more pronounced at underwriting thresholds with a high potential for agency conflict. These results are consistent with algorithmic underwriting mitigating agency conflicts and humans' limited capacity for analyzing complex problems.

Official sector lending during the euro area crisis

In response to the euro area crisis, policymakers took a gradual, incremental approach to official lending, at first relying on the blueprint followed by the International Monetary Fund, then developing their own crisis resolution framework. We describe this process of institutional development, marked by a substantial divergence in the terms of official loans offered to. We use a unique dataset of the characteristics of the various official loans to provide key stylised facts, and use regression and event analysis techniques to study the effect of different lending terms on market borrowing costs and fiscal performance. Euro area loans, when in longer maturities and lower rates, go hand in hand with improved market access. Instead, the terms of IMF loans appear to have no significant effect on market access, but primary balances are larger when IMF maturities are longer. We discuss arguments for refocusing debt sustainability analysis and embed debt management techniques in programme design, while considering the trade-off between adjustment incentives and official lending.

Why Do Firms Borrow from Foreign Banks?

I examine U.S. firms' motives for participating in cross-border syndicated loans with foreign banks. Firms borrowing from foreign lead arrangers pay higher interest rates on their loans compared to firms borrowing from local banks, controlling for firm and loan characteristics and using matched sample analyses. These firms experience an increase in foreign income and international M&A activity after the loan, which suggests that global expansion of operations is an important reason why a firm borrows beyond borders. I also find that loan spreads increase with the geographic and cultural distance between borrowers and foreign lenders, consistent with higher information acquisition and monitoring costs.

Loan to Value Caps and Government-Backed Mortgage Insurance: Loan-Level Evidence from Dutch Residential Mortgages

Using loan level data on mortgage loans originated by Dutch banks during 1996 to 2015, we analyse the determinants of the incidence of non-performance. We find that both the originating loan-to-value ratio (OLTV) and the debt-service-to-income ratio are significantly positively associated with the probability of non-performance. The results suggest that mortgages with government-loan-guarantees perform better. Moreover, several mortgage loan and borrower characteristics, such as the (interest-only) loan type and the underwater status of the borrower, increase credit risk. Our model predictions suggest a novel policy implication: in order to avoid acceleration of non-performance probabilities, the OLTV-limit should be set to about 70–80% for uninsured mortgages, and to about 90% for those with mortgage insurance.

Designing a Main Street Lending Facility

Banks add value by monitoring borrowers. High funding costs make banks reluctant to lend. A central bank can ease funding by purchasing loans, but cannot distinguish which loans require more or less monitoring, exposing it to adverse selection. A multi-tier loan pricing facility arises as the optimal institutional design setting both the purchase price and banks' risk retention for given loan characteristics. This design dominates uniform (flat) structure for loan purchases, provides the right incentives to banks and achieves maximum lending at lower rates to businesses. Both the multi-tier and flat structures deliver welfare gains compared to no intervention, but the relative gain between the two depends on three sufficient statistics: the share of loans requiring monitoring, the risk-retention ratio, and the liquidity premium.

Corporate legal structure and bank loan spread

This study examines how a firm's corporate legal structure may affect its borrowing costs. Corporate legal structure refers to the legal fragmentation of a firm into multiple, separately incorporated entities. This fragmentation is bound to be a factor when lenders determine the pricing of debt and design of contract terms because they can enter into legally enforceable agreements only with specific legal entities. Using a sample of private loans to parent companies in the United States, I find that a more complex corporate legal structure is associated with higher loan spread. The findings are robust to several firm and loan characteristics and are incremental to the effects of other forms of organizational structure, namely business and geographic diversification. Subsequent evidence suggests that the effect of a corporate legal structure on borrowing costs is, at least partly, explained by recovery risk.