Loan Demand Research Articles

An Analysis of Economic Performance and Issues of Indian Banking Sector

This paper intends to discuss the current trends of Indian banking sector and to identify emerging issues, challenges and opportunities for future growth of banking sector. In spite of effective and impressive growth in banking sector operation during the post-liberalization period, Indian banks, in recent years, are facing problems in managing stressed assets. The issues of rising NPAs, persistent asset quality deterioration, liquidity management, and stressed banks’ balance sheets remain as the key priorities for the banking sector nowadays along with macroeconomic issues like conformity of Basel III norm, IFRS-converged Indian Accounting Standards, financial innovation etc. The data period considered in this study is 2009–2018. The profitability analysis of the study confirms that Indian banking sector has shown inconsistent performance during the last ten years period. The study observed that future growth of banking sector is driven by rising rural income, growing demand for housing and personal loan, the move of financial inclusion and priority sector lending.

Dancing to the Same Tune: Commonality in Securities Lending Fees

We document that there is commonality in the loan fees that short sellers pay, and the common component of loan fees explains a significant amount of their variation. The time series of the loan fee common component is highly correlated with several well-documented asset pricing and macro factors, suggesting that loan fee commonality is associated with states of the world that are consequential to investors. At the asset level, we compute sensitivities of stocks’ loan fees to the loan fee common component and document that stocks with high loan fees tend to also exhibit high sensitivity to the loan fee common component. While controlling for other priced short-selling factors, we document a statistically significant negative relationship between the systematic volatility of loan fees (with respect to the loan fee common component) and stock returns, indicating that this commonality is priced in the cross-section of stock returns. In addition to this pricing implications, we present evidence that loan fee commonality is associated with lower price efficiency, suggesting that loan fee commonality is an important limit to arbitrage. Finally, we present evidence that loan demand may be the primary driver of the observed fee commonality.

Challenges of Strategic Issue Management Practices by Savings and Credit Cooperative Societies in Mombasa County, Kenya

Ansoff and McDonnell (1990) define Strategic Issues as forthcoming developments, either inside or outside of the organization that are likely to have an important impact on the ability of the enterprise to meet its objectives. Despite of their fundamental socio-economic role in Kenya, most savings and credit cooperative societies (Saccos), also hereby referred to as cooperatives, are faced with a number of challenges, such as: traditional products, leadership and governance issues, capital base requirement, taxation, Information and Communications Technology, regulation and supervision, developing competitive business models, demand for loans, non-remittance of fees by members, forgery, HIV/AIDS and outreach issues. Thus the central challenge for Saccos is to find constructive ways to build and retain competitive advantages in the market place. In a bid to enhance cooperatives’ performance, this study was destined to identify some challenges facing strategic issue management practices by cooperatives in Mombasa County. The findings revealed that cooperatives experience a myriad of challenges hence need to practice Strategic Issue Management. Keywords : Strategic Issues, Strategic Issue Management (SIM), Saccos. DOI: 10.7176/EJBM/12-28-01 Publication date: October 31 st 2020

Monetary Transmission through Bank Balance Sheet Synergies

We document the reserve supply channel of Quantitative Easing (QE) that has the unintended consequence of reducing bank lending to firms. Each dollar of central bank reserves created by QE crowds out 13 cents of bank lending. We reach this conclusion using a structural model that is estimated with instrumental variables for deposit and loan demand across regions of the country. Our results depend on two key estimates: the elasticity of demand for bank loans and how the cost of supplying loans is impacted by a bank's holding of reserves. We find that each $1 trillion of reserves in the banking system raises the cost of capital for loans by 1.5 basis points, leading to a 3.42% reduction in the quantity of corporate loans demanded. In a counterfactual simulation, we show that the $2.7 trillion of reserves created by QE reduced bank lending to firms by over $500 billion but had modest impacts on deposit and mortgage quantities. Our results imply that forcing the banking sector to hold the large quantity of reserves created by QE reduces QE's ability to stimulate the economy. This unintended consequence of QE could potentially be alleviated by the relaxation of the Supplementary Leverage Ratio (SLR) regulation.

FACTORS DETERMINING HOUSING DEMAND IN SAUDI ARABIA

Against the backdrop of real estate development and rising prices, which affect the affordability of housing in Saudi Arabia, this study empirically estimates housing demand using time-series analysis from 1987 to 2016. To find the main factors affecting housing demand in Saudi Arabia, this study developed an econometric model with explanatory variables such as income level, housing prices, population growth rate, demand for loans, and consumer price index (CPI). The results show that demand for housing is inelastic with respect to price, income, and population growth rate; moreover, the price elasticity of demand is less than that of income and population growth rate, in absolute terms. A regression analysis suggests that the most significant factors that determine housing demand in Saudi Arabia are population growth rate, CPI and demand for housing loans. This study was conducted with a particular focus on the Saudi Arabian market and showed some surprising results, which are not consistent with popular economic theories. Keywords: Housing demand; Income elasticity; Price elasticity JEL Classifications : E31, E32, R21, R31 DOI: https://doi.org/10.32479/ijefi.10262

The Unintended Effects of Bank of Ghana’s Clean-Up Exercise on Unaffected Financial Institutions: Evidence from Yilo Krobo Municipality, Ghana

This paper seeks to analyze the unintended accompanying effects of the Bank of Ghana’s financial sector sanitization popularly referred to as “clean-up exercise” which ended in August 2019 on the operations of unaffected financial institutions with ardent interest in customer deposits or investment and lending activities. The mixed-method approach thus, using both quantitative and qualitative methods of collecting data, was deployed for the study. The study population covered branch managers, credit officers, and cashiers of all financial institutions that were not affected by the Bank of Ghana clean-up exercise in the Yilo Krobo Municipality, Ghana. The findings of the study revealed that deposits have generally been low, whereas withdrawals have been very high, and these were due to fear and panic of losing funds or investments and loss of confidence among the banking population. On the other hand, lending activities have not been affected as customers of defunct financial institutions have shifted their loan demands or requests to the unaffected ones. However, some financial institutions are unable to meet loan request from their customers due to liquidity challenges arising from low cash deposits. The study recommends strict regulatory enforcement, periodic publishing of financial institutions in good standing, and timely education of customers of financial institutions in the event of any possible revocation of the license of any Financial Institution.

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

Abstract We analyze how the ECB’s purchases of corporate bonds under its Corporate Sector Purchase Programme (CSPP) affected the financing of Spanish firms. We first document that the announcement of the CSPP in March 2016 raised firms’ propensity to issue bonds. The flipside was a drop in the demand for bank loans by bond issuers. Around 75% of the drop in loans previously made to debt issuers was redirected to other, smaller nonbond issuing firms. This reallocation process was led by banks with weaker liquidity positions experiencing credit outflows, which extended credit to the same firms they were rationing prior to the CSPP. This positive credit supply shock raised the real investment of nonissuing firms. The concomitant ECB’s Targeted Longer-Term Refinancing Operations (TLTRO-II) is estimated to have contributed to amplifying the credit-reallocation effect triggered by the CSPP.

An empirical analysis of loan supply and demand in the euro area

Using a cointegrated vector autoregressive model (CVAR), this paper empirically examines the supply and demand for euro area loans to the non-financial private sector for the sample 1981 to 2017. We distinguish between loan demand and supply and disentangle the impact of the financial crisis on loans from conventional drivers. Applying I(2) cointegration analysis, we find two long-run (polynomial) cointegration relations and identify them as loan demand and supply functions. Despite rejecting long-run price homogeneity for euro area loans in the unrestricted model, we identify a stable system with (long-run) loan supply and demand functions based on conventional drivers and housing wealth. In terms of forecasting properties, we show that the loan demand function helps to improve the accuracy of euro area inflation forecasts for horizons of up to 8 quarters ahead and for loan forecasts for horizons of up to 2 quarters ahead, while the loan supply function does not have this property.

SPK Pemberian Pinjaman dalam Upaya Mengantisipasi Kredit Macet pada Anggota Koperasi Studi Kasus: KSP Warna Artha

Cooperative Savings and Loans is one type of cooperative in Indonesia that has the main activity is to provide storage services and loan funds to members of the cooperative with the aim of advancing the welfare of members in particular and society in general. From that base, it can be seen that cooperatives contain two elements, namely economic elements and social elements related to each other. It is said to have an economic element because the purpose of the cooperative itself is to achieve the welfare of members. The loan facility in the Artha Color cooperative has a high risk of non-performing loans or bad loans. The incidence of further problem loans may result in difficulties from the cooperative. This study aims to analyze the procedure of granting small and medium business loans and employee loans. The subjects of this research are staff of Artha Color Cooperative employees and members of Artha Color Cooperative. The object of his research is the analysis of the determination of lending employees to members of the cooperative. The data collected by interview method, observation and documentation are then analyzed by Quantitative Descriptive Analysis. The results showed that lending procedures to members of the cooperative has been well implemented starting from the submission of loan demand, analysis of guarantee files, conducting surveys, studying loan files, to disbursement of credit.

Trends in Life Insurance Demand and Lapse Literature

Abstract The article analyzes the interconnectedness and gaps between two interrelated streams of literature, evolving in different time periods, by employing bibliometric tools. The research on the factors of life insurance demand started in the late 1960s and early 1970s, while more intensive works on the drivers of lapses in life insurance appeared during the 2000s. We map the research fields using our own criteria to create clusters and visualize the flow of knowledge within and between the clusters employing citation network analysis (CNA). We contribute by providing the most comprehensive systematic review that integrates both fields, additionally encapsulating studies on the demand for policy loans. The article detects the most important drivers of life insurance policyholder behavior during his/her lifetime and opens new horizons for future research.

Watering a lemon tree: Heterogeneous risk taking and monetary policy transmission

We build a general equilibrium model with financial frictions that impede monetary policy transmission. Agents with heterogeneous productivity can increase investment by levering up, which increases liquidity risk due to maturity transformation. In equilibrium, more productive agents choose higher leverage than less productive agents, which exposes the more productive agents to greater liquidity risk and makes their investment less responsive to interest rate changes. When monetary policy reduces interest rates, aggregate investment quality deteriorates, which blunts the monetary stimulus and decreases asset liquidation values. This, in turn, reduces loan demand, decreasing the interest rate further and generating a negative spiral. Overall, the allocation of credit is distorted and monetary stimulus can become ineffective even with significant interest rate drops.

Cross-border effects of regulatory spillovers: Evidence from Mexico

This paper studies the spillover of a macroprudential regulation in Spain to the Mexican financial system via Mexican subsidiaries of Spanish banks. The spillover caused a drop in the supply of household credit in Mexico. Municipalities with a higher exposure to Spanish subsidiaries experienced a larger contraction in household credit. These localized contractions caused a drop in macroeconomic activity in the local non-tradable sector. Estimates of the elasticity of loan demand by the non-tradable sector to changes in household credit supply range from 1.2–1.8. These results emphasize cross-border effects of regulations in the presence of global banks.

Credit and Deposit Growth of Financial Agencies under Lead Bank Scheme in Jabalpur District of Madhya Pradesh

The study was undertaken to evaluate the expansion of bank branches as well as growth in total advances (including agriculture advances) and total deposits based on secondary data for the last 8 years (2008-09 to 2015-16) collected from lead bank (Central bank of India). The number of branches increased substantially from it base year which was good indicator of financial inclusion. Advances (including agriculture) and deposits were also increased at highly significant rate indicated that demand for loan increased over the period of time. Some of measures to improve the performance of Lead Bank included cooperation by member banks and the scheme should be continued to accelerate financial inclusion in the non-banking areas of the district.

ОСНОВНІ ТЕНДЕНЦІЇ РОЗВИТКУ СУЧАСНОГО РИНКУ КРЕДИТНИХ ПОСЛУГ В УКРАЇНІ

Для розширення господарської діяльності та забезпечення безперервності господарського обороту економічні суб’єкти в якості запозичених ресурсів найчастіше вдаються до кредитування. Відтак кредитні послуги банків та небанківських фінансових установ займають вагому частку на вітчизняному ринку фінансових послуг. Основними суб’єктами ринку кредитних послуг є банки, небанківські фінансові установи та інші юридичні особи, що не мають статусу фінансових установ, але мають відповідні ліцензії. Ринок кредитних послуг постійно перебуває під дією інституційних, економічних та соціально-політичних чинників, які можуть призвести до дестабілізації, спроб запровадження методів недобросовісної конкуренції, втрати довіри, і, як наслідок, призвести до порушення процесів відтворення. У проведеному дослідженні виявлено, що банківська система є безперечним лідером на ринку кредитних послуг. Проте, нині значну конкуренцію в сегменті кредитування фізичних осіб банківським установам складають різноманітні фінансові установи. Структура кредитного портфеля банків у розрізі клієнтів свідчить про те, що банківські установи достатньо активні в сегменті кредитування фізичних осіб, а тому розглядають фінансові компанії як конкурентів. На ринку зростає попит на короткострокові позики з терміном до одного місця. Також небанківські установи значно випереджають банківський сектор за показником приросту обсягів надання кредитних послуг. Зростає значення ринку лізингових та факторингових кредитних послуг. Ситуацію на ринку кредитних послуг ломбардів можна вважати відносно сталою, обсяг наданих кредитів цими установами зростав повільніше, ніж інші види кредитування. Отже, дія різноманітних ринкових чинників та незавершеність процесів регуляції небанківських фінансово-кредитних установ призводить загострення конкуренції між суб’єктами ринку, до змін в організаційних формах кредитних відносин та у процесах формування попиту та пропозиції кредитних ресурсів.

COVID Crisis: Fiscal, Monetary and Macro-financial Policy Responses

The ongoing COVID-19 pandemic in the world is deepening a profound impact and economic uncertainty. In essence, lockdown and social distancing measures are triggering losses in global production, supply, trades, investments, and employment. This article, to counteract the economic losses and macroeconomic uncertainty, explores the policy evolution of macroeconomic effects during the COVID-19 pandemic. It has communicated different policy responses addressing the potential economic damages in the G-7 countries and 24 emerging market economies (EMEs). The article also illustrates the lockdown and regulatory implications and dynamic economic interventions mandated by the governments, monetary authorities, and central banks. The study demonstrates the potential impact of fiscal, monetary, and macro-financial policy measures on the economic losses caused by regulatory and quarantine measures. Monetary authorities and central banks are lowering the policy rates like repurchase agreement rate (repo), reverse repo, cash reserve requirement (CRR) to ease the liquidity supplies to the economy. Central banks also offered credit facilities to cater to the demand for loans and advances. The study finds that G-7 economies and emerging market economies have implemented a comprehensive fast-track fiscal, monetary, and macro-financial policy to counteract the pandemic’s negative economic consequences. The policy measures include the fiscal stimulus package, direct spending, loans, and credit facilities, refinancing schemes, swap agreement, discount loan window, tax cut on credit, short term loan extension, bridge finance, policy rate cuts, bond purchase, SMEs financing. These policy measures, if implemented successfully, are predicted to minimize the impact of the crisis and to stabilize the economies.

Modeling the Behaviour of Corporate Demand for Credit in Mauritius before and after the Global Financial Crisis Under Conditions of Excess Liquidity by Banks

This Paper proves that the global financial crisis (GFC) has had a major influence in altering the pattern and subsequent demand for corporate finance in Mauritius. By applying probability models, it is found that bonus issuance is a key factor that influences the demand and supply for both debt and equity financing. Firms consider debt repayment variable of upmost essence to loan application and provision responses. Large companies, comprising of entities falling under the wing of the manufacturing, industrial and retail sector found ease in obtaining bank loans prior to the crisis due to the positive rating and nature of their respective businesses. Conversely, small and medium enterprises found themselves relaying heavily on startup loans, of limited amounts, as they failed to qualify for greater loan applications due to their inability to meet the adequate requirements. Corporate entities on their end, had a much greater preference for equity financing prior to the crisis. The aftermath of the crisis nevertheless negatively influenced the pattern of financing for all categories of businesses. A more regulated framework was adopted by banks, on an international level which caused banks to be more cautious and limited in providing finance to entities. Even with excess liquidity, banks have declined demand for bank loans.

Micro-finance as a Tool for Financial Access, Poverty Alleviation and Women Empowerment in Bindura District, Zimbabwe

The purpose of this study was to understand the role of micro-finance as a tool for women empowerment in Bindura Rural District of Zimbabwe. Qualitative methodology was used. Data collection methods used included semi-structured interviews, documentary search. The respondents for the study were drawn from rural women who had accessed loans from MFI, managers of MFI and the Zimbabwe Association of Micro Finance Institutions. The study found out that access to credit has positive outcomes on production, income, and consumption at household and macro-economic levels. Rural women in Zimbabwe lack adequate access to formal credit. The study found that that lack of adequate access to credit have significant negative effect on technology adoption, agricultural productivity, food security, nutrition, health, and overall welfare. The study concludes that the lack of collateral of the poor, their demand for smaller loans, and high transaction cost associated with small loans are the main factors that the poor are excluded from formal credit services.

Assessment of the Efficiency of Implementing the Regional Program of Preferential Lending to Small and Medium-Sized Businesses (Based on Rostov Region)

Financial factors are crucial for the development of small and medium-sized businesses. The article dwells on the issue of the effectiveness of regional financial support for small and medium-sized businesses implemented in the form of preferential lending, and it also discusses “failures” that generate problems in the implementation of this support. The research object is Rostov region. The authors prove that it is difficult for small and medium-sized businesses to obtain a loan on normal terms due to instability of financial flows. As a result of the analysis, the authors reveal that the volume of lending to small businesses in Rostov region is steadily declining. The decrease in demand for loans from small businesses is connected with high interest rates on bank loans. The article emphasizes that concessional lending can solve the problem through the encouragement of business development in priority areas for the region. The correlation analysis is carried out on the basis of comparing the main indicators of the regional subprogram “Development of small and medium-sized businesses in Rostov region” and indicators of social and economic development of the region. According to the results of the analysis, there is an increase in the number of economic entities in the section of small and medium-sized businesses due to unemployment reduction in the region. However, this quantitative dependence in Rostov region is functionally unstable and probabilistic. At the same time, inefficient organizational and methodological activities of the state in supporting small and medium-sized enterprises have lead to the emergence of “failures” that generate the problem not of the lack of financial resources but of their low demand.

Post-crisis Signals in Securitization: Evidence from Auto ABS

We find significant evidence of asymmetric information and signaling in post-crisis offerings in the auto asset-backed securities (ABS) market. Using granular regulatory reporting data, we are able to directly measure private information and quantify its effect on signaling and pricing. We show that lenders "self-finance'' unobservably higher-quality loans by holding these loans for longer periods to signal private information. This signal is priced in initial offerings of auto ABS and accurately predicts ex-post loan performance. We also demonstrate that our results are robust to exogenous shifts in the demand and supply of auto loans. Despite an environment of post-crisis enhanced transparency and securitization standards, signaling may be motivated by inattentive investors and regulations enforcing "no adverse selection'' in constructing ABS.

Effect of Price Levels, Exchange Rates and Interest Rates on Return on Assets of Commercial Banks in Nigeria

The profitability of commercial banks in Nigeria has been characterized by fluctuating trend over the years. Due to the significant roles carried out by commercial banks, this scenario has brought about concerns in the financial sector of Nigeria. The study sought to establish the effect of price levels, exchange rates and interest rates on return on assets of commercial banks in Nigeria. The period 2010 to 2017 was the time scope of the study. The study was based on descriptive, correlation and panel regression analyses which focused on the period 2010 to 2017. The study established that price levels had a significant effect (β=0.003, p=0.0170) on return on assets of commercial banks in Nigeria. The study findings indicate that exchange rates had a significant effect on return on assets (β=-0.0002, p=0.0440). Interest rates had a significant effect on return on assets (β=0.0136, p=0.0090) of commercial banks in Nigeria. The study recommends that the managers of commercial banks in Nigeria should always be in the know of the prevailing economic conditions of the country and that of other countries which they have operational branches. Commercial banks can engage in foreign exchange hedging practices where the fixed forward exchange rates can be used. This will cushion against the potential adverse effect of exchange rates on the assets of commercial banks. The study further recommends that policy makers and regulators (government) should implement policies that will lower the exchange rates which in turn will enhance the value of the local currency. This can be done by upholding restriction policies by government on importation of similar goods which are already manufactured locally in Nigeria. The study further recommends that in periods of high demand for loans, bank managers can take advantage of such periods by charging higher interest rates on loans, however moderately. Price discrimination can also come into play so as to apply different interest rates on loans to different customers which can be guided by their credit history. Keywords: Price levels, Exchange Rates, Interest Rates, Return on Assets and Commercial Banks DOI: 10.7176/EJBM/12-15-12 Publication date: May 31 st 2020