Loan Demand Research Articles

Predicting Bank Loan Eligibility Using Machine Learning

With the increasing needs of people, the demand for bank loans also rises. Each day, banks receive numerous loan applications from various customers and individuals, however, not all applicants are approved. Banks typically assess an applicant's eligibility before processing a loan application, a process that can be time-consuming and complex. In evaluating loan applications and making credit decisions, banks often rely on their credit scoring and risk assessment systems. Nevertheless, there are still cases where some applicants default on their payments annually, resulting in significant financial losses for financial institutions. In this research, we utilized machine learning algorithms to analyze a dataset of approved loans and predict which applicants are most deserving of a loan. The study incorporates customers' historical data, including factors such as age, income type, loan annuity, last credit bureau report, organization type, and length of employment. Various machine learning methods like Random Forest, XGBoost, Adaboost, Lightgbm, Decision tree, and K-Nearest Neighbor were utilized to identify the most influential features that impact prediction outcomes. These algorithms were then compared using standard metrics, with Logistic Regression achieving the highest accuracy rate of 92%. Key Words: Bank Loans, Logistic Regression, Credit Report, Risk Assessment

The macroeconomic costs of the bank tax

In this paper, we investigate the real effects of special taxation on banks. We provide evidence that the introduction of a new fiscal levy on banks significantly impairs their performance and has an adverse impact on the real economy through the lending channel. Using micro-level data on lending relationships, we identify the credit supply shock related with a bank tax controlling for loan demand factors. We compute a firm-specific measure of firm exposure to burdened credit institutions. We find a negative impact of the tax shock on investment and output. Our results are important from a policy perspective as they shed light on the economic consequences of double taxation on banks.

Digital loans and buy now pay later from LendTech versus bank loans in the era of ‘black swans’: Complementarity in the area of consumer financing

Research background: People who take non-banking loans are primarily perceived as excluded from accessing bank services. The growth of e-commerce and the increasing digitalisation of customer interactions with banks was particularly accelerated by the COVID-19 pandemic (the first ‘black swan’). These processes have also influenced the rapid growth of the LendTech (LT) sector within FinTech with its digital loans and buy-now-pay-later (BNPL) services. The war in Ukraine (the second ‘black swan’) has led to an energy crisis, increased inflation, interest rates and credit costs, and reduced credit accessibility. In this context, the following research questions are addressed: Are the LT and banking sectors complementary or substitutive in the area of consumer financing? Does complementarity apply to all customer segments and loan amounts? How does the extent of complementarity or substitutability of the LT sector depend on, and to what extent do changes in the regulatory and macroeconomic environment affect, the interaction between the banking and LT sectors? Purpose of the article: The aim of the article is to identify trends in the LT sector within FinTech in the context of assessing the scale and determinants of current and future complementarity of the non-bank sector and the banking sector in the area of consumer credit in time of black swans. An additional purpose of the article is to estimate revenues from the basic operating activities of companies from the on-line channel. Methods: The research process was multi-stage and the research procedure was structured. Due to the lack of a uniform source of data on LT products and services, the study used many data sources — data from the Credit Information Bureau, a primary nationwide survey on LT users a primary survey of people representing LT's managerial staff. The selection of LTs was carried out according to the concept of the monetary sampling unit. The Horvitz-Thompson estimator with Sen‐Yates‐Grundy variance form was used to estimate net operating income for LT from the online channel in 2021. Findings & value added: The LT companies surveyed state that black swans (the COVID-19 pandemic and the war in Ukraine) and the current macroeconomic situation have not significantly affected demand for non-banking loans. The reduction in the opportunities for the LT sector as a result of anti-usury regulations will only lead to a shift in consumer demand to the pawnshop sector and the shadow economy, which will be detrimental to consumers. Complementarity between LT and the banking sector is revealed especially in crisis situations, thus limiting the effects of market shock (limited supply of loans offered by banks). In periods of stabilisation, a rather clear division of preferences is noticeable – in the case of seniors and loans for higher amounts, banks dominate, while in the case of lower amounts and in younger age groups, non-bank institutions are more popular. The mechanism by which shrinking banking services are replaced by LT in short-term crises confirms the importance of LT in balancing the Consumer Finance market in the face of unstable periods. From a medium- and long-term perspective, it should be noted that inflation and rising interest rates will increase the scale of credit exclusion in commercial banks, shifting part of the demand to the non-bank sector. These phenomena have an international dimension. Similar observations were made already in 2012 by the CFPB in the USA and the British FTA, when analysing the consumer finance market immediately after the subprime crisis, emphasising the effects of limiting access to bank consumer loans and the resulting growth of the LT market (Gębski, 2013).

Modern methodology of metrics monitoring changes in bank lending conditions and credit demand levels

Relevance. The relevance of the article lies in the fact that lending, being a vital aspect of a bank's operations, plays a crucial role as a major investment source. It fosters the ongoing and expedited reproduction process, bolstering the economic capabilities of businesses, holds a prominent position as the primary revenue-generating activity for the bank. Purpose. The purpose of this study is to develop a modern methodology for monitoring changes in bank lending conditions and credit demand levels. The study aims to provide a comparative assessment of the current practices in analyzing lending fluctuations within the banking sectors of Kazakhstan, the Russian Federation, the USA. Methodology. To address the analysis task outlined in the study and to identify opportunities for enhancing the methodology, a variety of general scientific methods were employed. These included system-functional, statistical, structural, factorial, logical, graphical methods. Results. It is shown that the growth of lending in Kazakhstan is supported by demand in the regions, which necessitates the use of a highly sensitive model for calculating indicators reflecting alterations in the conditions of bank lending and demand for loans. The research results can be applied in solving the primary challenges within the industry of lending in Kazakhstan and other post-Soviet countries, and will improve the work of credit institutions, which is especially important after COVID-19 crisis. Conclusions. This study highlights the critical importance of modernizing the methodology for monitoring changes in bank lending conditions and credit demand levels. Lending is a vital aspect of a bank's operations, serving as a major investment source and a primary revenue-generating activity. Despite its significance, the full potential of bank lending has not been fully explored. This research provides a comparative assessment of current practices in analyzing lending fluctuations within the banking sectors of Kazakhstan, the Russian Federation, the USA. Keywords: demand for credit; bank; financial resources; lending conditions; region

A multi-level classification based ensemble and feature extractor for credit risk assessment.

With the growth of people's demand for loans, banks and other financial institutions put forward higher requirements for customer credit risk level classification, the purpose is to make better loan decisions and loan amount allocation and reduce the pre-loan risk. This article proposes a Multi-Level Classification based Ensemble and Feature Extractor (MLCEFE) that incorporates the strengths of sampling, feature extraction, and ensemble classification. MLCEFE uses SMOTE + Tomek links to solve the problem of data imbalance and then uses a deep neural network (DNN), auto-encoder (AE), and principal component analysis (PCA) to transform the original variables into higher-level abstract features for feature extraction. Finally, it combined multiple ensemble learners to improve the effect of personal credit risk multi-classification. During performance evaluation, MLCEFE has shown remarkable results in the multi-classification of personal credit risk compared with other classification methods.

ECONOMIC CONDITIONS OF THE DEMAND FOR INVESTMENT AND WORKING CAPITAL LOANS FOR MICRO-ENTERPRISES – RESEARCH FOR POLAND DURING COVID-19

Aim: The study aims to find an answer to the question of whether and how the economic indicators in the industrial processing, construction, trade, and services sectors reflect changes in the market size related to investments and working capital loans for micro-enterprises. Methods: The study used data on investment and working capital loans and data on economic conditions. Monthly data for the years 2019–2021, covering the period of the COVID-19 pandemic, were used for the analyses. The estimation of dynamic models was carried out using the Generalized Method of Moments (GMM). Results: The conducted research showed that economic factors play a significant role in shaping the demand for investment and working capital loans in the micro-enterprise sector, but the impact of the economic situation was more significant in the case of investment loans than working capital loans. In periods of economic prosperity, micro-enterprises are more likely to take out investment loans than in periods of economic downturn. Micro-enterprises’ propensity to take out working capital loans is more dependent on their current situation and expectations regarding the demand for products and services. Conclusions: The research revealed differences in the characteristics of the factors significantly influencing the demand for credit, depending on the sector to which the indicator is concerned. The research shows that access to external financing is crucial for the functioning, survival, and expansion of micro, small, and medium-sized enterprises. The research fills the literature gap by showing how the economic situation in individual industries affects the credit market for the micro-enterprises sector.

Effect of Interest Rate on Customers’ Demand for Loans in Atiwa Rural Bank PLC, Ghana

This study sought to determine the influence of interest rate on demand for loans among Rural Banks in Ghana. The study adopts an explanatory design of the quantitative approach. Secondary data from the Atiwa Rural Bank PLC database was used. The data were analysed using frequencies and percentages. Also, binary logistic and linear regression were used in analysing the relationship among the key variables of this research. The study found that interest rate of Atiwa Rural Bank PLC was rated as moderate while repayment status was high. There were differences between the category of the respondents and the repayment status. More males repay their loans as compared to females and groups. Also, differences existed between the employment status of the respondents and the repayment status. Moreover, insignificant differences were identified between the employment status of the respondents and the repayment status. Interest rate affects loan period positively. Also, a strong positive correlation between interest rate and loan period was determined. Interest rate affects amount of facility negatively. Moreover, credit facility with high interest rate is 1.020 times more likely to default in paying back the credit facility as compared to respondents who obtained their credit facility as a moderate or low interest rate. Increasing interest rate was associated with low or default in repayment of credit facility. The study therefore, recommend that management of the Atiwa Rural Bank PLC put up measures to able to track and retrieve all small amount of facility or loans given to clients. Also, the management of the Atiwa Rural Bank PLC should target more salaried workers and loans used for emergency services such as medical bills, school fees among others in order to reduce Non-Performing Loans (NPL). Moreover, the management of the Atiwa rural bank should improve upon the mechanisms implemented regarding giving of group loans and repayment issues.

ADOPTION OF GREEN BANKING: AN ANALYSIS IN SOME SELECTED AREAS OF BANGLADESH

Green banking is the new way of conducting banking business through encouraging eco-friendly practices and lowering the carbon footprint of banking operations. The present study was conducted to analyze the green banking activities and reasons for the adoption of green banking, examine the factors contributing to the adoption of green banking, assess the relationship between green banking and the factors affecting the adoption of green banking, and find out the problems faced by bank officials in adopting green banking. A total of six banks and 60 bank employees were selected randomly from Mymensingh and Sylhet districts in Bangladesh. Data were analyzed through the Likert scale and the Pearson Chi-square test. A multinomial logistic regression model and the Garrett ranking method were also used. The major findings showed that private banks were more concerned about green activities than public banks, and the most important reason for the adoption of green banking was that banks wanted to convert their activities from traditional to modern. Environmental benefits, stakeholder pressure, policy guidelines, economic components, and loan demand were significantly influenced by adopting green banking. This study found that the lack of training for bank officials and the inadequate knowledge of customers about green activities were two of the biggest problems for the adoption of green banking. For the improvement of green banking services, a training facility for bank officials needs to be established. Keywords: Green banking, Adoption, Problems, Bank officials, Bangladesh.

DETERMINAN PERMINTAAN KPR FLPP PADA PT. BANK BTN KANTOR CABANG SYARIAH

This research aims to determine the effect of income, population, murabahah margin, mortgage interest rates at competing banks, and age on the demand for FLPP (Housing Finance Liquidity Facility) mortgages at PT. Bank BTN Syariah Malang for the 2020-2022 period using secondary data. The reason for choosing Bank BTN Syariah Malang is because Bank BTN Syariah occupies the second position in the category of the best KPR Subsidy distribution in Indonesia, which is 14,052 units. This research uses quantitative methods with multiple linear regression analysis. The results of the study prove that income variables have a positive and significant effect on the demand for FLPP home ownership loans. The variability in the number of married people and mortgage interest rates at competing banks has a negative and significant effect on the demand for FLPP home ownership loans. Meanwhile, murabahah margin and age variables do not significantly affect the demand for FLPP home ownership loans. The variables of income, population, murabahah margin, mortgage interest rates at competing banks, and age simultaneously affect the demand for home ownership loans, housing finance liquidity facilities.

Exploring the role of interest rates, macroeconomic environment, agricultural cycle, and gender on loan demand in the agricultural sector: Evidence from Mali

AbstractFormal credit plays an important role for the development of the agriculture sector in developing countries because many farmers are characterized as liquidity constrained. Access to credit can increase farmers' purchasing power for inputs and agricultural technology, thus raising the overall productivity. Farmers in Mali are particularly vulnerable to shocks, such as heavy precipitation events. Access to liquidity to increase the resilience of the agricultural sector is essential. Therefore, higher financing volumes are required, which make the analysis of loan demand in agriculture of interest. The purpose of this paper is to empirically investigate the role of the interest rate, the macroeconomic environment, the agricultural cycle and the gender of the farmer on the loan demand in the agricultural sector from a country in the Sahel. Unique and comprehensive loan data at the farm level, provided by a commercial Malian bank, is used for this analysis. The analysis covers the period from 2010 to 2020. Two different estimation strategies are combined. First, an ordinary least square regression is applied with the granted loan amount as the dependent variable. Second, the machine learning technique, least absolute shrinkage and selection operator, is applied to select the most relevant features to be used as explanatory variables in the estimation. The results reveal that the interest rate, the gross value added, the farmer's gender as well as the agricultural cycle have statistically significant effects on the granted loan demand in agriculture. These results are of interest to policymakers, who deal with financial inclusion as well as market failures, and agricultural financial institutions who could incorporate such information in the design of future loan products to stimulate farmers' loan demand, especially for female farmers. [EconLit Citations: G20, G21, O13, O16, Q14, Q18].

Financing small and innovative firms during COVID-19

ABSTRACT Previous research on the financing of smaller innovative firms has established that being small per se creates problems in accessing finance, but being small and innovative adds another layer of difficulty. This new research explicitly questions whether the Covid-19 crisis has added to the debt access problems of an already disadvantaged group of firms. Using a unique Covid-19 period dataset of 9000 UK SMEs, we find that the most innovative firms had the highest demand for loans during the Covid-19 crisis and evidence that those firms trying to introduce new products and services faced more severe borrowing constraints. As the vast majority of Covid-19 loans in the UK were government guaranteed, we also find that several classes of innovative firms found it more difficult to access government supported loans. It was also not the case that those most impacted by the crisis had the most privileged access to government loan schemes despite a greater need for liquidity. These findings have potential implications for financing innovative firms in the post-Covid-19 world, such as proposing a specific innovation loan guarantee scheme with higher than conventional guarantee rates.

The COVID-19 pandemic and discouraged borrowers among Hungarian companies

An increasing attention has been paid since the millennium to companies who have loan demand but are afraid of refusal. The self-rationing of loan demand is also affected by the coronavirus pandemic according to the economic literature, however, there are only a few empirical studies regarding this topic. Based on the corporate surveys of the Hungarian Development Bank (MFB-INDIKÁTOR) we analyse that to what extent and to which direction did the latent loan demand of the Hungarian companies change as a consequence of the pandemic, which corporate segments reacted more sensitively to the crisis, and whether there is a measurable effect of the negative perception towards the banks to the lending decisions of the companies. On the basis of the results of cross-tabulation analyses the pandemic moderated the fear of loan application only temporarily; the behaviour of older firms, larger companies and the agricultural sector can be considered relatively stable regarding this issue; finally the role of the experiences and in many cases the negative preconceptions about the banks having a long history together play important roles in self-restraint.

Fundamental Risk Factors and Profitability of Commercial Banks in Kenya

Commercial banks are vital to the financial sector in any country more so in developing economies where capital markets are not well developed and strong. Commercial Banks’ profitability is important because the soundness of an industry is closely connected to soundness of the whole economy. Profitability of the banking sector is also central as the well-being of the industry is closely associated with the wellness of the whole economy in general. Thus, a proficient and productive banking sector is able and better placed to endure negative economic shocks. This study investigated the fundamental risk factors and profitability of Kenyan commercial banks. The study systematically reviewed past studies undertaken on the area of interest. Attention was given on the study findings and the methodology. Conclusions on the relationship that exist between the variables were drawn for the study from the findings of the past studies. Recommendations were made based on the study findings and conclusions. price level fluctuation had a significant positive effect on profitability of commercial banks in Kenya based on return on assets and net interest margin while an insignificant positive effect on return on equity. Exchange rate fluctuation had a significant negative effect on profitability of commercial banks in Kenya based on return on assets and an insignificant negative effect based on return on equity and net interest margin. Interest rate fluctuation on profitability of commercial banks in Kenya. The study found that interest rate fluctuation had a significant positive effect on profitability (return on assets, return on equity and net interest margin) of commercial banks in Kenya. The study recommends that the managers of commercial banks in Kenya should always be in the know of the prevailing economic conditions of the country and that of other countries which they have operational branches. The study found that exchange rate fluctuation is a major predictor of profitability of commercial banks in Kenya (based on return on assets). As such, the managers of commercial banks can engage in foreign exchange hedging practices where the fixed forward exchange rates can be used. The effect of interest rate fluctuation on profitability of commercial banks in Kenya was found to be significant for all the three measures. The study therefore 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.

The Impact of Macroeconomic Factors on Bank Credit Risk

Credit risk has become one of the main risks faced by banks under the background of increasing loan demand. Meanwhile, bank credit risk may be affected by a number of factors, including the expansion rate of Gross Domestic Product (GDP), changes in interest rate, unemployment rate and even more. These macroeconomic factors are crucial in determining how credit risk for banks is shaped. This paper concludes the different impacts of different macroeconomic factors discussed in several papers on the risks of bank credit, and illustrates how changes in GDP growth rate and rate of interest affect credit risks. Through comprehensive literature review and empirical research, this paper finds that macro factors, including the expansion rate of GDP and the rate of interest, have considerable impacts on banks' credit risk. Bank credit risk will decrease as GDP growth rate increases; however the risk of bank credit will increase as interest rates rise. At the end, the paper provides several suggestions for the development of risk management strategies, including the monitoring of macroeconomic factors and the adjustment of credit policies under different economic situations. The research results are intended to help researchers in related fields understand current research findings and patterns of development in the research field, to give a theoretical foundation and backing for their investigations, and to offer important guiding significance for banks and relevant regulators to formulate risk management strategies.

Resilience of cooperatives during global pandemics – Short-term effects of Covid-19 on lending behaviour of British credit unions

Cooperative financial institutions are believed to be less vulnerable to business and economic fluctuations linked to recessions and crises. This paper examines the short-term effects of Covid-19 on the British credit union sector drawing on survey data for 58 credit unions and follow-up interviews with 21 credit union managers. Loan demand, and the volume and value of loans were significantly lower in March and April 2020 after the introduction of government restrictions than in March and April 2019. Bad debt provisioning was also significantly higher in April 2020 than in April 2019. There was no significant difference for loan interest income between April 2019 and April 2020. The findings suggest that credit unions were affected by the pandemic in the same way as other financial institutions. For the majority of the credit unions, the decline in lending may be explained by a drop in consumer demand rather than restrictions put on the supply of credit. It is too early to conclude if the adverse economic conditions caused by Covid-19 will negatively affect the sustainability and ability of the sector to generate surpluses or if the cooperative model will shield the sector from resulting economic fluctuations, as suggested by the literature.

Taşıt Kredileri Talep Tahmininin Yapay Sinir Ağları Kullanılarak Analiz Edilmesi

Kişilerin finansman ihtiyacını karşılamada kullandıkları tüketici kredilerinin içerisinde taşıt kredileri önemli bir yer tutmaktadır. Birden fazla sektöre ekonomik anlamda etki eden taşıt kredileri banka ve finans kurumlarının ana gelir kalemlerinden birini oluşturmaktadır. Taşıt kredilerinin tahmin edilebilirliği banka ve finans kurumlarının rekabet gücünü doğrudan etkileyebilmektedir. Otomotiv sektörü de taşıt kredilerinden etkilenen bir diğer sektördür. Otomotiv sektörünün dünyanın her yerinde ciddi bir tüketici talebi bulunmaktadır. Türkiye’de otomotiv sektörü son yıllarda hızlı bir büyüme göstermektedir. Çalışmada Türkiye’nin 2006 Ocak ayı ile 2022 Haziran ayı arasındaki dönemdeki aylık frekanslı veriler kullanılarak, yapay sinir ağları makine öğrenim tekniği ile taşıt kredisi büyüklüğünün tahmini amaçlanmıştır.

Is Digital Credit Filling a Hole or Digging a Hole? Evidence from Malawi

Abstract Digital credit has expanded rapidly in Africa, with opaque loan terms amidst low consumer financial literacy. Rich data from Malawi shows substantial demand for a digital loan with a base interest rate of 10% over 15 days, yet most borrowers are not aware of loan terms, repay late and incur substantial late fees. Regression discontinuity analyses show no evidence that access to small digital loans harms consumers’ perceived well-being. A short, randomised, phone-based financial literacy intervention improved knowledge, but did not increase timely loan repayment and modestly increased loan demand, ultimately increasing the likelihood of ever defaulting.

Удосконалення кредитних відносин держави та суспільно значимих суб'єктів господарювання аграрного сектору економіки

Introduction. In the conditions of insufficient volume of lending to important sectors of the economy, it is necessary to expand the list of instruments and change the conditions of state lending to socially significant economic entities. The basis of the changes should be the relaxation of the requirements for securing the loan and the compensation of part of the interest rate on the loan. Problem Statement. There are objective and subjective factors affecting the demand and supply of loans in the national credit market. These include the credit policy of the National Bank of Ukraine, credit, market and other risks, internal policy and target orientations of financial and credit institutions, in particular, targeting those business objects that provide an opportunity to obtain profit with minimal or controlled risks. Therefore, in the agrarian sphere, a situation arises in which lending is insufficient or impossible for most of its agents. Purpose. To justify the need to improve lending relations for financial support of socially significant business entities. Methods. The following methods are used: abstract-logical, systematization, dialectical and formal logic, expert evaluations. Results. The existing mechanisms aimed at the development of lending relations have been studied. a number of negative phenomena related to the inefficiency of the existing interest rate compensation mechanisms and state guarantee of loans have been identified. The need for preferential state lending to socially significant business entities with minimal risks of non-repayment of loans has been proven. Conclusions. The problems of lending development can be solved through legal, institutional and organizational mechanisms, the application of which is aimed at taking into account the social economic significance of lending objects, minimizing credit risks and ensuring the sustainable development of lending objects.

Dynamic framework for strategic forecasting of the bank consumer loan market: Evidence from Ukraine

Accurate forecasting of consumer loan market behavior gives banks a huge potential to optimize their credit strategies by proactively adapting to external changes. This study aims to analyze and predict consumer loan demand, supply, and profitability in the Ukrainian banking sector. Using a systemic dynamic approach, the interplay of five key factors is considered: central bank policies, GDP fluctuations, changing competitive landscape driven by FinTech companies, investment in government bonds as an alternative to loan granting, and severity of credit risk management.The developed dynamic model for the bank consumer loan market in Ukraine offers predictive capabilities enhancing decision-making and strategic planning in the banking sector and can be adapted in open small economies. Within the proposed systemic dynamic model, five scenarios were explored. Compared to the base scenario, a 4 p.p. increase in the key policy rate results in UAH 4.7 billion decrease in demand for bank consumer loans and a UAH 0.55 billion reduction in lending profitability based on the year’s results. Fall in GDP by 6 p.p. leads to a decrease in the supply of bank consumer loans by UAH 6.9 billion and a decrease in lending income by UAH 1.3 billion based on the year’s results. Scenario with the decline of FinTech portfolio by 20 p.p. quarterly leads to an increase in demand for bank consumer loans of UAH 8 billion. A 4 p.p. rise in government bond yields leads to a UAH 17 billion reduction in the supply of consumer loans in the same quarter.

Has the COVID-19 Pandemic Changed the Influence of Interest Rates on Consumer Loan Demand?

Has the COVID-19 Pandemic Changed the Influence of Interest Rates on Consumer Loan Demand?