Loan Structure Research Articles

Firm commonality, bank connectedness and portfolio riskiness

We propose a new connectedness measure that addresses heterogeneous multiple borrowing loan structure among banks. Using confidential data from over 44 million commercial loans from Turkish banks during 2007–2016, we construct a bank network that emerges from the banks lending to common firms. While the related literature mostly focuses on systemic risk, our framework allows us to empirically study banks’ loan portfolio riskiness. First, we document that banks’ portfolio riskiness decreases with connectedness, even when controlling for the impacts of loan size and multiple borrowing. Second, we find that the probability of loan default is higher for highly connected banks compared to weakly connected ones. These findings suggest that highly centralized banks seem to manage their overall portfolio risk better.

Measurement of development level of digital transformation of banks in Northwest China

Abstract. In the current era, the digital economy has become an important opportunity for commercial banks. In order to keep up with the pace of The Times, build a solid foundation of science and technology finance, and promote the economic development of the Northwest region, this paper adopts the analytic hierarchy process and fuzzy comprehensive evaluation method to explore the influential factors of the digital transformation of banks in the Northwest region. The analysis shows that net capital, operating income and loan-to-deposit ratio have the greatest impact on the digital transformation of banks. In terms of digital transformation of banks in Northwest China, Shaanxi Province and Gansu Province have a better development level, Qinghai Province and Ningxia Hui Autonomous Region are relatively average, and Xinjiang Uygur Autonomous Region Province is relatively backward. Based on this, the paper puts forward suggestions to improve the level of capital management, optimize the structure of deposits and loans, and promote income diversification.

Application of Deterministic Multiple Linear Regression and Stochastic Analysis Through Monte Carlo Simulation to Model Loan Consumption Assuming Kenyan Data

The main focus of this survey is to examine the key determinants of loan consumption in Kenya, with a keen focus on variables such as monthly expenditure per adult, deposits, economic strength index, and diverse economic opportunities. The study's target population is Kenyan citizens aged 18 years and above. The study obtains data from the Kenya national census, aggregated at the county level. The literature review section presents sufficient support for the study’s hypothesis. In particular, the authors highlight Kenya as a country with one of the highest loan consumption in Africa, which plays as a motivation for conducting this survey. The survey methodology involves the use of quantitative analysis using descriptive statistics like tables, graphs and charts, deterministic multiple linear regression, and stochastic analysis through Monte Carlo simulation. The results of the survey show that monthly expenditure per adult, deposits, and economic strength index have a significant impact on loan consumption amount; that is, R-squared is equal to 0.88. The implication of this survey is based on its contribution to the understanding of loan consumption behaviors in Kenya, presenting relevant insights for policymakers, financial institutions, and other stakeholders in the lending and borrowing processes. The outcome has the potential to inform loan structure policies to enhance the promotion of responsible and sustainable loan consumption.

Machine learning Bureau score for Home Lending in an American finance company

Our client is a leading provider of mortgage financing, originating loans and lines of credit to consumers in the US. Currently, they receive applications where applicants provide personal information and a soft pull of their FICO score is requested. That score is used to evaluate the applicant’s credit worthiness and determine conditional approval and the type of product available for the customer, including conventional, FHA or other mortgage loans. After conditional approval, a formal application is initiated, and underwriters review the information to determine the final application decision. When evaluating applications below regulatory and business thresholds, the company has the intention to approve more applications and increase loan volume, and there is an expectation that through the enhanced credit assessment, our client will improve the percentage of Low to Moderate Income (LMI) population able to obtain mortgage loans. Both aspects have a direct impact on the reputation and economic profits of the firm, so they are of pressing importance to the company. This project aims to build an applicant-level bureau-only score based on upgraded bureau internal attributes. This score will eventually serve as the basis for evaluating a customer’s credit risk before any loan structure or collateral information is considered. It will be used as a standalone score that can be used in the initial customer evaluation to identify better leads (mortgage inquiries for preapproval) and as input to a future application-level model.

Сучасний стан банківського кредитування суб’єктів малого підприємництва сфери оборони в україні

The article examines the current state of bank lending to small businesses in the defense sector in Ukraine. An analysis of the component expenditures of the state budget in 2021–2024 has been carried out; in particular, the share of defense expenditures has been determined. It has been found that defense production requires working capital for the purchase of components, covering the gap between the advance and the need for funds, relocation of enterprises, and provision of uninterrupted/alternative power sources. An analysis of current lending programs for small and medium-sized enterprises managed by Ukrainian banks in 2023 (JSC CB “PrivatBank”, JSC “Oschadbank”, JSC “Sense Bank”, JSC “Ukrgasbank”, JSC OTP BANK, JSC “Taskombank”, JSC “KredoBank”) has been carried out. The structure and volumes of loans issued to entrepreneurs within the framework of the Affordable Loans at 5-7-9% state program during the period of martial law have been studied, and their sectoral structure indicates that the funds have been being directed chiefly to agriculture – 52%, wholesale trade – 17% and food industry – 8%. A range of problems faced by small businesses in the defense sector in the process of bank lending has been outlined, in particular: lack of contracts with the Ministry of Defense of Ukraine, the need for weapon use approval, short-term nature, obtaining permission to export weapons, high interest rates, military risks, lack of collateral property, etc. The priority measures for expanding lending to the defense sector in Ukraine by the National Bank of Ukraine, the Ministry of Strategic Industries of Ukraine, and the Ministry of Finance of Ukraine have been systematized. It has been proposed that preferential state programs for bank lending be introduced to small businesses in the defense sector. Keywords: bank lending, small business, defense sector, support program, state program.

Кредиттік серіктестіктің қызметін бағалау және оның ауыл шаруашы- лығы кәсіпорындарын қаржылық қамтамасыз етудегі рөлі

The purpose of the article is to evaluate the role and activities of a credit partnership in the process of financial support for agricultural enterprises. Using abstract-logical and statistical methods in accordance with the goal, the tasks of dynamic assessment of the activities of Tselinogradskoe Credit Partnership LLP in the Akmola region were considered, determining its role in providing financial support to agricultural producers, the state of lending to these producers, in particular, were considered the structure of loans and their use, as well as identifying problems associated with them. The state of income and expenses of the credit partnership, indicators of lending to agricultural producers, that is, their dynamics and structural changes, were assessed. As a result, from an economic point of view, it was found that the increase in net profit is determined, first of all, by the faster growth rate of income compared to the growth rate of expenses. The intermediary activities of CT Tselinogradskoe LLP were analyzed based on the number of participants, the amount of loans issued by area, their return rates over the course of several years, as well as a positive result of the activities of the credit company, A trend has been identified to increase the volume of lending to agricultural producers. And the efficiency of the credit partnership is confirmed by the improvement in the production and financial performance of participants and loan recipients. Further development of the mechanism for lending to agricultural producers through credit partnerships should be carried out taking into account the results of the production and financial activities of the partnership participants, and their volume should take into account the results of the enterprises’ activities.

Impact of fintech on the loan structure of urban commercial banks in China

The emergence of financial technology has created both opportunities and disruption in commercial banking. Commercial banks loans remain the primary source of finance for Chinese enterprises. Therefore, it is imperative to investigate the impact of financial technology on Commercial banks loan structures. This study uses relevant data from Chinese urban commercial banks from 2011 to 2019 and adopts empirical research methods to analyze the mechanism underlying the impact of fintech on the loan structure of urban commercial banks. The results indicate that the fintech is associated with improving credit and guaranteed loans, reduces mortgages and pledged loans, and promotes the optimization of loan structure of urban commercial banks. Fintech has a significant impact on the credit loan structures of urban commercial banks in the Eastern region, whereas its impact on urban commercial banks in the Central and Western regions is relatively small.

The Legal Nature of the Lease Purchase Agreement: Issues of Application of the Loan Structure and Judicial Interpretation

The essential-substantive approach to the subinstitute of the lease purchase in civil law is to study the essence of this lease agreement through its features and essential conditions. The essence of the first order is the specifics of the lease agreement itself, and the essence of the second order is the consideration of lease purchase as a substitute. This methodological approach makes it possible to determine the place of the contract in question in civil circulation. It is argued that the study of the lease purchase agreement through its essence is the most effective method of studying a lease agreement in the system of civil law contracts. Using the example of judicial practice, the features of the leasing agreement and the reasons for its unpopularity in Russia are revealed. It has been established that judicial practice follows the path of equating leasing with credit and loan relations. This position of the courts is disputed by the authors. Legal relations under loam and leasing are distinguished, which, according to the authors, will avoid judicial errors in determining the legal nature of the lease purchase. It is proved that the lease purchase is a type of lease agreement, and not a loan or loan agreement. In a loan agreement, the borrower always becomes the owner of the subject of the agreement, and in a leasing agreement, the title of the owner of the property remains with the lessor until the end of the agreement. It is proved that the application of the interpretation of contra legem has a negative impact on the development of contract law, in particular leasing legal relations.

Evaluation of bank efficiency by considering the uncertainty of nonperforming loans

Research of banking operations has recently attracted increasing interest among bank managers and scholars, especially research on the evaluation of bank efficiency. As a prominent factor, nonperforming loans are always considered when measuring bank efficiency. Actually, the complex structures and uncertainty of non-performing loans have been neglected in previous studies. In our study, a new robust two-stage DEA (data envelopment analysis) model is proposed to analyze bank efficiency while considering the structure and uncertainty of nonperforming loans. The proposed model was utilized to assess Chinese commercial banks’ performance. Results indicated traditional model may overestimate banks’ performances, which will mislead bank decision-makers seeking to implement improvement strategies. Moreover, the majority of banks performed better in producing deposits compared with earning profits. Lastly, gaps between small medium banks and state-owned banks are still larger when considering the structure and uncertainty of nonperforming loans. Specific recommendations are proposed for each type of bank.

The Repayment Structure of Agricultural Loans Under a Full Repayment Constraint

The Repayment Structure of Agricultural Loans Under a Full Repayment Constraint

Монетарні впливи на ринок праці в умовах невизначеності

The aim of the article is to study the features of the impact of monetary policy on the domestic labor market during the wartime. The main trends in the labor market of Ukraine both before the full-scale invasion of the russian federation and under martial law are determined. The indicators of official statistics on the number of unemployed are studied, assumptions about the real level of this indicator are made, and short-term trends in the revival of registration of persons in the employment center as unemployed or job seekers are predicted. The impact of the bank rate policy pursued by the central bank on employment of the population has been proved. It is determined that the overall impact of changes in the bank rate in the country depends on the ratio between small and large enterprises, as well as on the share of employees with high and low levels of education. Reserve requirements for banking institutions are mentioned as a monetary instrument for influencing the labor market. It is emphasized that one of the main obstacles to doing business in wartime is the lack of working capital. It is calculated that in the structure of loans granted by the banks of Ukraine, the dominant value (more than 70%) belongs to economic entities. Considerable attention is paid to business lending (including within the framework of the state program «Affordable Loans at 5-7-9%») as a prerequisite for the creation of new jobs. The problems of growth in the volume of non-performing loans during the wartime are considered. The catastrophic position of Ukraine in the ranking of countries by the level of NPLs in the total volume of loans issued, compiled according to the World Bank data, is underlined. The trends in the level of NPLs in Ukraine before the full-scale invasion and the reasons for the growth in the volume of non-performing loans in 2022–2023 are analyzed. It is proved that the high cost of credit resources limits the availability of working capital in business and forces it to optimize wage costs, which leads to a decrease in the level of remuneration and reduction of jobs. It is substantiated that the monetary aspects of the influence on the preservation of the labor potential of the nation acquire special importance during the war.

Банківські інструменти кредитного забезпечення великих підприємств в Україні

The article highlights the theoretical and practical foundations of lending to domestic large enterprises. The main types of the bank lending to corporate clients are allocated and characterized. It is noted that in the process of lending relations, representatives of large businesses are offered a fairly wide range of loans and the related services, namely: term services, investment loans, loans for current activities, promissory notes, commercial mortgages, acceptance and guarantee loans, financial leasing, factoring, forfaiting. Based on the carried out analysis of the dynamics of bank credit investments in the economy and the development of large enterprises in Ukraine, it was concluded that loans granted to large enterprises during the research period make up about a third of the total volume of all loans received by economic entities. The carried out assessment of the dynamics and structure of loans granted to large enterprises in terms of repayment terms indicates the predominance of short-term loans for the period under study. On the basis of the carried out research, conclusions were drawn and specific proposals were made regarding the improvement of the process of lending to large enterprises, which include: the implementation of effective national and regional programs for lending to large enterprises, as well as the creation of programs for reimbursing or subsidizing interest rates on loans; application in the process of bank lending of detailed target segmentation of customers, taking into account the field of activity, seasonality of production, financing model; creation of opportunities for concessional lending to enterprises by means of the development of new banking products aimed specifically at the target borrower, offering, in parallel with lending, service for management of enterprise profit and the provision of financial consulting services to minimize potential risks of the borrower.

The current state of macroeconomic indicators of the development of the national economy during the russian-Ukrainian war

The article is devoted to the study of macroeconomic indicators characterizing the trends of the economic development of the state during the period of the full-scale invasion of russia on the territory of Ukraine. The dynamics of quarterly changes in the GDP of Ukraine in the period 2020–2022 were analyzed. The index of industrial production indicators in the period 2021–2022 was evaluated. The changes that occurred in the structure of the Ukrainian economy under the influence of the Russian-Ukrainian war were determined. The level of inflationary fluctuations, which were mainly caused by disruptions in the logistics and energy sectors, as well as the rise in world commodity prices, was assessed. The article investigates the main humanitarian problems of the population of Ukraine during the war in terms of macro-regions. Attention is focused on the problem of financing the state budget and repaying Ukraine's debt to external creditors. The structure and dynamics of the involved financing of the state budget in 2022 were studied. The amount of funds from the placement of military bonds included in the State Budget of Ukraine and the main directions of their use have been determined. The structure of external loans and grants, international aid received by Ukraine in 2022 was analyzed. The main changes in the labor market under the influence of the war are characterized.

The influence of interest rates on outstanding loans of enterprises on their structure in the bankruptcy warning system

Small and medium-sized enterprises (SMEs) create more than half of the added value, providing about two-thirds of employment in most countries. However, they need more liquidity, access to credit resources, and significant outstanding loans. This study aims to identify the impact of interest rates on outstanding loans of enterprises on their structure as a way to prevent bankruptcy. The correlation-regression analysis used OECD statistical data for 2008‒2019 sampling individual countries; it showed an ambiguous situation between the interest rate and the share of outstanding loans of SMEs in the overall structure of outstanding loans. The paper verified constructed regression equations and estimated their parameters. The regression equations for Belgium, the Czech Republic, Estonia, and Latvia are statistically reliable. Thus, in Belgium and the Czech Republic, a negative relationship was recorded (r = –0.822; D = 0.675; r = –0.9274; D = 0.794; F-criterion > Ft, respectively), and in Estonia and Latvia – a positive one (r = 0.876; D = 0.767; F-criterion > F•Ft; r = 0.800; D = 0.641; F-criterion > Ft , respectively). Australia, Italy, Slovakia, and France practically do not have a corresponding relationship. The regression equations make it possible to estimate the change in the level of interest rate on the share of outstanding loans of enterprises in the overall structure of outstanding loans, make predictions of the corresponding performance indicator, and develop measures of restoring the solvency of enterprises as an essential task of preventing their bankruptcy.

Effect of Creative Accounting Practices on Solvency of Selected Deposit Money Banks Quoted in Nigeria

The purpose of deposit money banks is to maximize solvency by acting as an economic intermediary between economic sectors that are in deficit and those that are in surplus. One of the main goals of deposit money banks' existence is to achieve solid bank solvency. However, fraud manner of using creative accounting measures in manipulating bank financial information has resulted to insolvency and collapsed of deposit money banks in Nigeria. The objective of the study is to examine the effect of creative accounting practices (cash assets structure, equity capital structure, loan structure, deposit liability and accrual quality) on solvency of selected deposit money banks quoted in Nigeria. The population of the study comprised of all the nineteen (19) listed deposit money banks as at December, 2021 while a targeted random sampling technique was adopted to select the sample size of ten (10) failed banks and seven (7) surviving commercial banks listed in Nigeria Stock Exchange (NGX). Ex post facto research design was adopted using dataset for the period 2006–2021 which were collated from the annual reports and financial statements of the listed deposit money banks. The data collected were analyzed using mean scores and Panel Regression Model method. The analysis revealed that three of the proxies of creative accounting such as cash assets structure, equity capital structure and deposit liability negatively but insignificantly influenced the survival of the DMBs, accrual quality is having a negative and significant effect on survival of the banks while only loan structure is having a positive but insignificant effect on survival of the DMBs on bank solvency (AdjR²= 0.258, F= 12.07: p < 0.05); while for failed banks, it was revealed that cash assets structure, and equity capital structure have positive and significant effect but equity capital structure has negative and significant effect while loan structure, deposit liability and asset quality have positive and insignificant effect on bank solvency (AdjR²= 0.33, F= 7.38: p < 0.05). The study concluded that creative accounting measures affect bank solvency in Nigeria. Therefore, the study recommended that bank managers should endeavor to employ accounting measures based on global and accounting standard so as to enhanced bank solvency among deposit money banks in Nigeria.

Risk management in the strategic planning of the banking organizations activities under force majeure conditions

Methods. The methods used as the methodological basis of the study were: logical – when describing the cause-and-effect relationships between the economic activity of banking institutions and the level of riskiness of their operations, general and specific – when assessing the influence of the dynamics of macroeconomic characteristics of the development of the national economy on the functioning of banking organizations; analysis and synthesis – in the study of the main sources of risk for financial and credit organizations and the development of recommendations for the use of banking services market tools aimed at increasing the attractiveness of savings in the short- and medium-term perspective. Results. The influence of the military economy on the state of banking sector organizations is considered. The dynamics of the volume of banking assets and the number of banking organizations, as well as the volume and structure of loans granted to legal entities have been analyzed taking into account the types of enterprises. A description of the management mechanism to apply the possibilities of the refinancing system is given, as well as the sale of so-called «war bonds» to help banking organizations attract client funds. Novelty. Directions for adjusting the strategic development plans of banking organizations are proposed, which will allow to minimize the risks of conducting business operations under conditions of force majeure. A list of tools (mortgage financing, interest rate increase, opportunities to invest one's own savings in securities) is proposed, which should help to increase the deposit base of individuals and legal entities. Practical value. Recommendations for top managers have been developed, which relate to the use of banking market tools to stabilize the financial condition of banking organizations and minimize risks from their business activities.

Influence of asset quality, capital adequacy, loan structure and macro-economic variables on financing of mortgage products by commercial banks in Kenya

The study sought to determine the influence of asset quality, capital adequacy, loan structure and macro-economic variables on Financing of mortgage products by commercial banks in Kenya. The study used a descriptive research design targeting 196 bank managers including, relationship managers, head of mortgage/retail sales, head of documentation, credit manager, head ofdocumentation, head of finance, and finally head of legal. Data collected was coded and cleaned before undertaking necessary analysis that comprised descriptive and inferential statistics. Descriptive statistics was done by means of frequency tables, mean, standard deviations, charts and figures, while inferential statistics included ANOVA, regression and correlation analysis. The results show that asset quality, capital adequacy, loan structure, macroeconomic variables jointly influence 81.5% of the mortgage financing. Further they were positively and statistically significant in predicting the variation in mortgage financing (F (4, 147) = 161.65, p&lt;.000). The study recommends that banks should consider their credit portfolio in making decisions on financing mortgage products. More so, banks should favour adjustable-rate mortgages as opposed to fixed-rate mortgages and that banks should not charge high loan fee for mortgage products. Finally, it is recommended that banks should support the government housing finance systems by offering various mortgage loan flexibilities to developers of affordable housing products and that it should formulate policy and procedure on mortgages that can support commercial banks in financing mortgage products.

EFFECT OF CREATIVE ACCOUNTING PRACTICES ON CREDIT RISK MANAGEMENT OF SELECTED DEPOSIT MONEY BANKS QUOTED IN NIGERIA

Sound credit risk management is one of the criteria for deposit money banks to carry out efficient financial intermediation in developed, emerging and developing economies including Nigeria. However, the manipulation of bank financial data by fraud utilizing inventive accounting techniques led to the poor credit risk management and collapse of deposit money institutions in Nigeria. The objective of the study is to examine the effect of creative accounting practices (cash assets structure, equity capital structure, loan structure, deposit liability and accrual quality) on credit risk management of selected deposit money banks quoted in Nigeria. The population of the study comprised of all the nineteen (19) listed deposit money banks as at December, 2021 while a targeted random sampling technique was adopted to select the sample size of seven (10) failed banks and seven (7) surviving deposit money banks listed in Nigeria Stock Exchange (NGX). Ex post facto research design was adopted using dataset for the period 2006–2021 which were collated from the annual reports and financial statements of the listed deposit money banks. The data collected were analyzed using mean scores and Panel Regression Model method. The analysis revealed that for surviving banks, creative accounting had a significant influence on credit risk management (Adj.R2 = 0.182, Wald-Test= 4.44 :p &lt; 0.05). Therefore, the study recommended that the management team of the banks should ensure that credit portfolio of the deposit money banks is prudently managed to grow year on year in the right mix and without contravening the statutory guidelines to avoid bad and doubtful loan classifications so as to achieve sound credit risk management.

Assessing the Volume of Changes to Banking Assets and Liabilities Using Genetic Algorithms in Additional Funds Needed Model

This paper investigates Small-Medium Banks’ (SMBs) business plans in accordance with the structure of Additional Funds Needed (AFN) model. The Key Profitability Variables (KPVs) are the size and structure of deposits, loans, and their interest rates. This study employs a Genetic Algorithm (GA) problem with hard constraints, to point out the limits to changes in the structure of deposits and loans and the effects of those changes on the P&amp;L of a banking institution. After examining 10,000 iterations with Evolver, an innovative optimization software that uses GA, OptQuest, and linear programming, the alternations, have been narrowed down to 3700 which satisfy both, a) constraints and b) maximization of profits. Having also the distributions, this paper concludes that it is a useful methodology that must be further exploited by applying risk weights, mainly for credit risk, to the structural components of the Balance Sheet, and to other competitive institutions.&#x0D; Keywords: banking institutions, genetic algorithms, additional funds needed, operational research

Research on Liquidity Risk Management of Commercial banks under the impact of Fed rate hike

Liquidity risk refers to the risk of insolvency, credit decline, market value decline and other consequences that commercial banks cannot obtain enough working capital when paying debts or maintaining business operations. In the information society, liquidity risk has become a huge obstacle to the development of commercial banks and even to their survival. And in the most aggressive Fed rate hike cycle since March 2022, liquidity risk management should be a top concern for regulators and commercial banks. This paper studies the course of interest rate hike of the Federal Reserve, its impact on commercial banks, the current situation and difficulties of liquidity risk management of American commercial banks, and puts forward countermeasures and suggestions accordingly: commercial banks should strengthen the liquidity risk management ability, adjust and optimize the deposit and loan structure, strengthen the liquidity risk management awareness of managers, and so on.