Loan Market Research Articles

Geographic disparities in bank lending: Evidence from an auto loan market

We investigate geographic biases against nonlocal borrowers in the Chinese auto loan market. Using proprietary loan-level data from a major commercial bank in a regional market, we discover that nonlocal borrowers encounter geographic discrimination, manifested in higher loan rates and shorter loan durations compared to similar local counterparts, even after adjusting for borrowers' risk profiles. This bias is exacerbated by information asymmetries as well as economic and institutional stereotypes. The disparity is particularly pronounced in cases involving elevated loan-to-value (LTV) ratios, higher-value or luxury vehicles, and among male or older borrowers. Our findings shed light on the human biases in lending decisions in the credit market.

The systemic risk of leveraged and covenant-lite loan syndications

By modelling the whole U.S. syndicated loan market as a financial network from 2000 to 2022, we find that highly connected institutions hold significant shares of leveraged and covenant-lite loans. Our analysis indicates that the size of leveraged and covenant- lite syndicated loan portfolios increases financial institutions' systemic risk, particularly during recession periods. Although banks commonly sell syndicated loans shortly after origination, our results suggest that they remain vulnerable to pipeline risk. Our study has significant implications for policymakers and regulators, as it can aid in identifying banks exposed to systemic risk associated with leveraged and covenant-lite loans and in ranking systemically important financial institutions accordingly.

Systemic risk in banking, fire sales, and macroeconomic disasters

We develop a dynamic computational network model of the banking system where fire sales provide the amplification mechanism of financial shocks. Each period a finite number of banks offers a large, but finite, number of loans to households. Banks with excess liquidity also offer loans to other banks with insufficient liquidity. Thus, each period an interbank loan market is endogenously formed. Bank assets are hit by idiosyncratic shocks drawn from a thin tailed distribution. The uneven distribution of shocks across banks implies that each period there are banks that become insolvent. If insolvent banks happen also to be heavily indebted to other banks, their liquidation can trigger other bank failures. We find that the distribution across time of the growth rate of banking assets has a ‘fat left tail’ that corresponds to rare economic disasters. We also find that the distribution of initial shocks is not a perfect predictor of economic activity; that is some of the uncertainty is endogenous and related to the structure of the interbank network.

MAIN DIRECTIONS OF BANK LOANS IN CREDIT MARKET

Financial analysis in credit market and commercial banks, which have been an important factor of economy and human life and activity currently, study of financial-economic results of activity of a bank, determination of main directions of development of the bank and main factors of financial business processes, determination of purpose-oriented special knowledge and growth rates, etc. Different economic sources, internet materials have been applied as a theoretical and methodological basis. As systematization of loans in bank lending system is a theme of the research, methods such as analysis, induction and deduction have been used. Main scientific innovation that has been put forward: In this field, one of the most important issues is, certainly, organization of organization system of information issues, which have the most significant role in determining and implementation of successful demand and supply of bank loans in credit market and main directions of bank loans in credit market. Results of the research: Finding perspective improvement ways of commercial banks Development of credit system, directly improved by banks, significantly positively effects progress of country economy Information tools and technology play the most important role in improving credit market now.

Unveiling the adverse selection problem in China's digital lending market: Evidence from CHFS

Using data from the China Household Finance Survey (CHFS) 2019, we reveals a substantial adverse selection issue within China's Internet Credit Loan (ICL) market. Empirical evidence indicates that households with higher Debt-to-Income Ratios (DIR) are more inclined to apply for Internet Credit Loans (ICLs), with an average DIR of 76.9 %, constituting 20 % of ICL applications. While Internet Credit Loans (ICLs) provide alternative financing options, their high fixed interest rates undermine the potential cost advantages associated with digital technology. Adverse selection is especially pronounced in the case of operational loans. Our findings underscore the urgency for regulatory intervention to address these issues effectively.

Does ICT Investment Affect Market Share and Customer Acquisition Cost? A Comparative Analysis of Domestic and Foreign Banks Operating in India

Competitive banks aggressively invest in information and communication technologies (ICT) to enhance their market share and reduce Customer Acquisition Costs (CAC). This study examines the impact of cumulative stock of ICT investment on (a) deposit and loan market share and (b) CAC of banks operating in India. The analysis uses a longitudinal dataset of 84 domestic and 70 foreign banks from 2000 to 2020, employing a two-step system Generalized Method of Moment (GMM). It is found that ICT investment adversely affects the market share of domestic banks, indicating a need for these banks to strategically invest more in CAC. Conversely, foreign banks are able to increase their market share through ICT investment and reduced CAC, thereby demonstrating greater efficiency in utilizing ICT. The study underscores the strategic importance of cumulative stock of ICT investment for banks. Nonetheless, it is emphasized that ICT investment must be complemented with innovative marketing strategies to enhance customer experience, reduce CAC, and increase market share. Overall, while foreign banks are able to leverage ICT to boost efficiency, domestic banks must leverage ICT to implement targeted marketing strategies and strive to enhance their customer service.

Who Provides Credit in Times of Crisis? Evidence from the Auto Loan Market

Who Provides Credit in Times of Crisis? Evidence from the Auto Loan Market

Does firm carbon risk matter to banks? Evidence from the US syndicated loan market

Using two measures of firm carbon-risk exposure to capture convergent materiality, we examine whether the syndicated loan market considers borrowers’ carbon-risk exposure in loan pricing. We find that carbon intensity does not constitute material information for banks, whereas environmental scores have a statistically significant but incidental economic effect on loan spreads. We also find inconclusive evidence that the market differentiates between firms in high and low environmentally sensitive industries. Finally, we show that green banks charge higher loan spreads to more environmentally responsible firms. Overall, we provide strong evidence that environmental scores matter in loan pricing decisions.

Quistclose trusts and green projects

Abstract This article analyses the relevance of Quistclose trusts in a situation in which lenders make green finance available to borrowers for environmentally sound and sustainable projects. This examination highlights how a transaction can be structured to increase the likelihood of such a trust being recognised. This article will also consider green loans (as defined by the Loan Market Association) since these loans have characteristics that can indicate the presence of a Quistclose trust. Beyond the practical aspects of creating a trust, the article explores whether a Quistclose trust can be useful when money is lent for green projects. It is possible to question if Quistclose trusts can motivate borrowers to be more conscious of how they use the loan money. In particular, the article discusses whether the fiduciary duty regarding the use of the funds can strengthen the integrity of certain loans.

Impact of economic crises on corporate‐banking relationship: Evidence from Korea

AbstractThis study tries to identify the impact of recent economic turmoil including the COVID‐19 pandemic and global financial crisis on a corporation's banking relationships. Using a wide range of unique data from 2008 to 2020 in the Korean loan market, this study compares the two crises periods to the ordinary periods. It is found that the effects of firm‐specific factors on banking relationships are strengthened (for loan amount) or weakened (for corporate size and credit rating) during the two crises. However, for the industrial sector a firm belongs to, the interaction effects of the crises show opposite signs.

RESEARCH ON THE INFLUENCE OF INDUSTRIAL HERITAGE TOURISM INTERACTION BEHAVIOR ON VALUE CO-CREATION

This article is dedicated to an in-depth analysis of how interest rate adjustments in the financial sector reflect subtle changes in macroeconomic policies and reveal the complex motivations behind the behavior of market participants. With qualitative research methods, we carefully examined the launch of China's inter-bank lending market in 1996, the removal of the deposit interest rate ceiling in 2015, and the comprehensive reform of the loan market interest rate quotation mechanism in 2019. This study examined the intrinsic connections between interactive behavior, experiential value, and value co-creation in the field of industrial heritage tourism, specifically focusing on the moderating role of cultural identity. The study used research methods like structural equation modeling to confirm that interactive behavior has a significant positive effect on value co-creation. It also found that cultural identity positively moderates the relationship between experiential value and value co-creation. These findings not only enrich relevant theories but also provide practical guidance for the development of industrial heritage tourism. The results indicate that industrial heritage tourism destinations should prioritize interactive experiences for visitors, design interactive activities that cater to diverse experiential needs, and enhance visitors' sense of identity with industrial heritage culture to facilitate value co-creation and promote sustainable development in industrial heritage tourism.

Macroeconomic environment and the future performance of loans: Evidence from three peer-to-peer platforms

The literature on peer-to-peer loan market performance focuses predominantly on the microlevel variables connected to individual borrower or loan characteristics. We hypothesize that the economic environment, reflected by macroeconomic variables at the time of loan origination, should play a role in explaining loans’ future performance. Our dataset comprises two US-based platforms and one UK-based platform, which provides a rich field to verify our hypothesis with numerous loan-related variables. Specifically, we consider Lending Club with 1,169,976 individual loans and 128 variables, Prosper with 386,685 loans and 142 variables, and Zopa with 440,493 loans and 192 variables. Using linear and threshold regressions, we observe three main findings: (i) accounting for the macroeconomic environment systematically improves our understanding of the variation in the future performance of individual loans; (ii) demand-side variables, particularly the unemployment rate and industrial production, have stronger effects as supply-side and economic uncertainty variables; and (iii) the importance (effect size) of the macroeconomic environment is at least at the level of that of calendar and geographic variables but much smaller than the importance of loan or borrower characteristics. These results suggest that the economic environment might be useful in individual loan-level credit risk models.

One Month Longer, One Month Later? Prepayments in the Auto Loan Market

We document a secular trend of increasing auto loan maturity from 30 months to over 70 months during the past 50 years, partly reflecting improved vehicle durability. Analyzing over half of the auto loans originated during the past 16 years, we find that longer-maturity new car loans have significantly higher interest rates with a yield curve much steeper than comparable-maturity Treasury securities. In addition, we show that the majority of auto loans were prepaid, including loans of zero-interest, and that many prepaying borrowers could have paid less interest by choosing loans of a shorter maturity. We argue that factors such as liquidity constraints, uncertainty about future income, and monthly payment targeting likely account for only a portion of borrowers' choice of long-maturity loans.

China’s Presence in Africa and Impact Towards Africa Continent

In recent years, China has put a lot more attention on Africa, especially through foreign aid and investment, and it has become a major player in the loan market on the continent. China's financial support is transforming African nations from underdeveloped to developing, and China's contributions to Africa have increased the continent's allure to other international investors. The objectives of the research are: 1) to identify factors that contribute to China’s presence in Africa and 2), to determine the impact of China’s presence in Africa. The Dependency Theory will be used to define China's presence in Africa in terms of political, economic and security interests to determine its influence on Africa. Secondary data from reputable sources and references will be acquired and examined for this research, which will take a qualitative approach to data interpretation and analysis. The research findings are China presence in Africa was to enlarge her economy triumph. Besides that, China's presence in Africa, founded on reciprocity, friendliness, and collaboration based on the principle of peaceful coexistence, has a multitude of consequences, prospects, and advantages for both parties.

The Loan Market Response to Dropdown and Uptier Transactions

The Loan Market Response to Dropdown and Uptier Transactions

Who Lends Before Banking Crises? Evidence from the International Syndicated Loan Market

Who Lends Before Banking Crises? Evidence from the International Syndicated Loan Market

The bright side of bank lobbying: Evidence from the corporate loan market

Bank lobbying has a bitter taste in most forums, ringing the bell of preferential treatment of big banks from governments and regulators. Using corporate loan facilities and hand-matched information on bank lobbying from 1999 to 2017, we show that lobbying banks increase their borrowers' overall performance. This positive effect is stronger for opaque and credit-constrained borrowers, when the lobbying lender possesses valuable information on the borrower, and for borrowers with strong corporate governance. Our findings are consistent with the theory positing that lobbying can provide access to valuable lender-borrower information, resulting in improved efficiency in large firms' corporate financing.

Dual holdings and shareholder–creditor agency conflicts: Evidence from the syndicated loan market

AbstractWe examine implications from the expansion of private equity (PE) firms into the collateralized loan obligation (CLO) (i.e., leveraged lending) business. Due to similarities in the investment universes of CLO managers and PE firms, asset managers running both of them frequently hold debt and equity claims of the same company. Our results indicate lower credit costs for these companies through the mitigation of shareholder–creditor agency conflicts. The lower funding costs imply increased equity returns for the sponsoring PE firms. In addition, our findings suggest that PE‐affiliated CLO managers benefit from informed trading in the secondary leveraged loan market.

Serving the unserved: a market segmentation, price discrimination based customer-centeric approach to home loans in india

The housing finance sector in India has witnessed remarkable growth in recent years, yet a significant portion of the population remains excluded from accessing formal home loan facilities. This master thesis report aims to address this gap by proposing a customer-centric approach to home loans, utilizing market segmentation and price discrimination strategies to serve the unserved segment of the market effectively. The study begins by identifying the need to bridge the gap in home loan accessibility and explores the reasons behind the exclusion of certain demographic groups. Through a comprehensive literature review, the report examines existing research on home loans, market segmentation, price discrimination, and customer-centric approaches in the financial services industry. The research methodology employed in this study utilizes a mixed-methods approach, combining qualitative and quantitative techniques to gather insights into the preferences, challenges, and perceptions of potential home loan borrowers. A carefully designed sampling plan ensures the representativeness and reliability of the data collected. Data analysis reveals patterns and trends within the home loan market, shedding light on the effectiveness of different segmentation and pricing strategies in reaching the unserved population. The questionnaire used for data collection is provided in the report, along with a discussion of the limitations, challenges, and barriers encountered during the research process. In conclusion, the report summarizes key findings and recommends strategies for policymakers, financial institutions, and other stakeholders to enhance inclusivity and efficiency in the home loan sector. By adopting a customer-centric approach and leveraging market segmentation and price discrimination techniques, the goal of serving the unserved can be achieved, contributing to greater financial inclusion and societal welfare.

Curse and blessing: The effect of the dividend ban on euro area bank valuations and syndicated lending

At the outbreak of the Covid-19 pandemic, the European Central Bank issued a strong recommendation towards banks to halt dividend payouts. The goal of this de facto dividend ban was to boost banks' capital to ensure the supply of credit. However, given the importance of dividends for investors, this unprecedented measure is likely to have impacted bank valuations. Hence, banks may have chosen to preserve their higher capital buffers to boost payouts after the lifting of the ban, rendering the intended positive effect on credit supply a priori uncertain. We first investigate the effect of the dividend ban announcement on euro area banks' valuations and find a significantly negative impact. Second, we show that banks significantly expanded credit supply in the syndicated loan market, without counteracting effect of the negative stock market reaction. Our findings are corroborated when we exploit the multi-bank nature of syndicated loans in a within-loan setup.