Original Loan Research Articles

Utilization of time-driven activity-based costing and process simulation in cost management of organization

The deployment of information and communication technologies in organizations is on the rise. Many organizations consider the application of technologies to be a crucial key to improve their processes. However, traditional costing systems are not suitable for cost estimation of business processes due to the use of volume-based cost drivers, which are often not adequate for the structure of today’s organizations. In this research, we present an overview of how the TDABC (time-driven activity-based costing) model can be combined with process mining and business process simulation for cost estimation of such processes. The objective of this paper is to use the cost dimension as a major attribute for the potential implementation of robotic process automation (RPA) in companies. However, information and communication technologies could be considered in general. We demonstrate our approach in a case study that takes advantage of a real-life event log containing transactional data representing the loan application process in an insurance company. The event log is analyzed and processed using process mining techniques. Based on the preprocessing, a simulation model representing the original loan application process is designed. The designed simulation model is then used for simulation of partial and full implementation of RPA through separate scenarios. Then, we add the cost dimension to the simulation by enriching the event log with cost data based on a formalized cost model. We show that even though partial implementation of RPA might not deliver significant increase in efficiency in the process, it might still represent significant cost savings.

Economic Disruptions in Repayment of Peer Loans

Economic disruptions can alter the likelihood of defaults on peer-to-peer loans, causing those impacted to adjust. The option to declare economic hardship and temporarily reduce the payment burden can provide some relief. When this occurs, the borrower’s financial qualifications have changed. The qualities instrumental in successfully securing the original loan terms must be reanalyzed to manage risk. This is a critical point in the life of the loan because the declaration of financial hardship can signal that the borrower’s ability to repay has diminished. We present a novel default detection scheme for borrowers experiencing an economic disruption based on the Two-Class Support Vector Machine, a data classification algorithm for supervised learning problems. The method utilizes data from actual loan records (15,355 loans from 2016 through 2020), specifically from borrowers who declared economic hardship. We provide a detailed description of the default detection process and present results that show defaults among borrowers experiencing financial hardship can be predicted accurately.

Does inflation trigger early repayment on Covid-19 UK guaranteed loans?

ABSTRACT The UK government underwrote more than 1.68 million business loans totalling £78.4bn during the COVID-19 pandemic. Given that the Bounce Back Loan (BBL) had a 100% guarantee and the Coronavirus Business Interruption Loan Scheme (CBILS) 80%, the public sector contingent liability is very large. In this article, we explore whether or not the recent and dramatic rises in UK inflation have prompted firms with COVID-19 BBL and CBILS guaranteed loans to repay their outstanding debt early (in advance of the full 6-year loan term as specified in the original loan agreement). Our results show that this was indeed the case with increasing inflation exerting a strong and positive effect on early loan repayment on both guarantee schemes. This is consistent with the firm’s debt aversion and a desire to reduce existing debts in anticipation of a future economic recession, liquidity problems and high interest rates.

Explaining the Effects of Credit Score on Mortgage Rates

In this research project, we are trying to reject the null hypothesis that credit score does not affect the interest rate on a mortgage loan. This is important because the majority of homeowners have financed their home using a mortgage loan, and the interest rate they receive depends on many different factors, including credit scores. If homeowners are aware that a higher credit score will effectively help them lower the interest rate they pay on their mortgage, they can work to improve it and save money. Our main findings indicate that there is a significant relationship between mortgage interest rates, combined loan to value, unpaid principal balance, original loan term, occupancy, property type, and whether they are a first-time home buyer. The data also suggests that credit score does indeed have a statistically significant effect on what kind of interest rate borrowers receive on their loans. A higher credit score will tend to lower the interest payment homeowners must pay on their mortgage.

Loan Default Prediction Based on Convolutional Neural Network and LightGBM

With the change of people's consumption mode, credit consumption has gradually become a new consumption trend. Frequent loan defaults give default prediction more and more attention. This paper proposes a new comprehensive prediction method of loan default. This method combines convolutional neural network and LightGBM algorithm to establish a prediction model. Firstly, the excellent feature extraction ability of convolutional neural network is used to extract features from the original loan data and generate a new feature matrix. Secondly, the new feature matrix is used as input data, and the parameters of LightGBM algorithm are adjusted through grid search so as to build the LightGBM model. Finally, the LightGBM model is trained based on the new feature matrix, and the CNN-LightGBM loan default prediction model is obtained. To verify the effectiveness and superiority of our model, a series of experiments were conducted to compare the proposed prediction model with four classical models. The results show that CNN-LightGBM model is superior to other models in all evaluation indexes.

Fighting for Farmers

Fighting for Farmers

Punovažnost valutne klauzule nakon stupanja na snagu Zakona o konverziji

This paper deals with legality of the currency clause in light of the Law on Conversion of Housing Loans Indexed in Swiss Francs. The first part analyses characteristics of the currency clause, in order to explain effects of its possible illegality on validity of the loan agreement. The author emphasizes inconsistency in the way Serbian courts approach this issue and suggests arguments for treating the loan agreement as being only partially invalid. The second part presents different opinions regarding legality of the Swiss francs currency clause, which is generally treated as an invalid contract term in judicial practice. Thereafter, solutions to the problem of Swiss francs in the Law are examined. It is concluded that conversion is not possible if the original loan agreement was invalid due to an illegal currency clause. Consequently, illegality of the currency clause remains open after entry into force of the said Law.

ПРОБЛЕМИ ЗАХИСТУ ПРАВ СТОРІН ДОГОВОРУ ПОЗИКИ, ПОВ’ЯЗАНІ З НЕДОЛІКАМИ ЙОГО ОФОРМЛЕННЯ

The legal requirements for the form of the loan agreement are analyzed. It is determined that the loan agreement may be concluded in writing by recording the content of the agreement in one or more documents (including electronic), in letters, telegrams exchanged by the parties, as well as to confirm the fact of the agreement and its terms the borrower’s receipt may be issued. The main problems encountered in the judicial practice of resolving disputes arising from the loan relationship and related to the shortcomings of the loan agreement are identified. It is established that courts when considering the cases of debt collection under a loan agreement, executed by a single document signed by both parties, need to analyze in detail the content of the agreement and from its points to draw conclusions about whether funds were transferred during the agreement. In itself, the existence of a written agreement does not always confirm the transfer of funds and, accordingly, its conclusion. The main conditions for the novation of the debt into a loan obligation are worked out and the rules for drawing up the relevant agreement are established. The condition for the application of the innovation is the existence of an outstanding undisputed monetary obligation between the parties. The novation agreement shall be concluded in compliance with the form prescribed by the law for the loan agreement in Art. 1047 of the Civil Code of Ukraine. Moreover, in contrast to the original loan agreement, to confirm the conclusion of the novation agreement, a receipt from the borrower can not be considered sufficient. The novation agreement shall contain a condition on the original monetary obligation and the grounds for its occurrence and a condition on the termination of this obligation. This agreement shall also specify the amount of the loan, the debtor's obligation to return the specified amount to the creditor and the terms of such repayment. Compliance with these requirements must be taken into account by the courts in resolving disputes arising from debt novation agreements into debt obligations. It is also advisable to supplement Art. 1053 of the Civil Code of Ukraine with the provisions on the essential terms of the contract of novation. The cases of execution of a written loan agreement or a promissory note without actual transfer of funds to the borrower are analyzed. It is proven that a loan agreement can be challenged due to its lack of money in court by filing a lawsuit to invalidate it. In this case, the ground for recognizing such an agreement invalid is the failure of the party (parties) to comply with the requirements established by parts one ‒ three, five and six of Article 203 of the Civil Code of Ukraine (e.g. fraud, error, violence), which led to that the money or items were not actually received by the borrower from the lender or were received in smaller quantities than specified in the contract. Amendments to the relevant legislation and recommendations to the courts in its application are proposed.

Comparison the Autonomic Regional Financial Performance in Southeast Sulawesi Province

The consequence of the implementation of regional autonomy is that the regions must have their own abilities to implement government affairs and regional development. There is some research on the financial performance of the area but is still done in a partial autonomic region only. This research compares the financial performance between the autonomic regions of the expansion and the parent area. Based on this, study aims to compare the financial performance of the parent regency and the expanded district. In this study financial performance is measured based on Regional Financial Independence (KKD) rastio, Fiscal Decentralization Degree (DDF) ratio and the Regional Financial Effectiveness Ratio (EKD). Overall, secondary data are used, namely the realization of Regional Original Revenues (PAD), PAD targets, Balancing Funds, Loan Funds, and Regional Expenditures. To answer the research problem, the data is processed using ratio analysis. The results showed that the Regional Financial Performance measured by the ratio of KKD and DDF in the parent regency was still higher than the KKD and DDF in the expanded districts. Both the parent district and the expanded districts of KKD and DDF are included in the Instructive category. The role of the central government is still very dominant in regional financing. In general, the expanded district EKD ratio was very effective while the parent district EKD ratio was generally included in the quite effective category. The financial performance of the regional results is better than the parent region due to the existence of autonomous regions to promote maximum income sources.

Foreclosure on collateral under French and Vietnamese laws

In Vietnam, as a result of limited financial competence, it is quite normal for small and medium enterprises to acquire loans from credit institutions, mostly under pledge and mortgage agreements. With the purpose of fostering economic growth, it is, therefore, very important to help individuals and businesses gain access to credit and increase the credit availability for them. In order to do so, obviously the possibility of predicting the time and cost involved in the realization of their security rights should be clearly seen by creditors through clear and effective regulations on enforcement or particularly on the foreclosure of collateral. In fact, Vietnamese laws on secured transactions has recently been developed under the Civil Code 2015, adding two new security devices which are retention of title and retention of property. The new code also clearly distinguishing security devices which have the characteristic of personal rights and real rights as well as perfects the mechanism of effectiveness against third parties. The paper focuses on presenting the differences between the foreclosure o pledged and mortgaged property in French laws and in Vietnamese laws and suggests some modifications to Vietnamese relevant statutes to protect the rights of both debtors and creditors in pledge and mortgage transactions, learning from French practices. Recommendations include a more active role of the securing party in serurity right enforcement process under judicial supervision, the court's involvement in property value appraisal, an extra-judicial mechanism for creditors for collaterall repossession and a provision setting forth an obligation of the secured party to diligently and effectively exploit the secured property to earn maximum fruit and incomes and deduct such amount from the interest and original loan.

Economic and psychological aspects of estimation of risks of securitization of banking assets

The article describes the problems of introduction of asset securitization in Russia in terms of standardization of processes in the field of risk management and the establishment of risk management profession considered the key principles and stages of financial risk management, asset securitization model are studied. The attractiveness of securitization is the company's financing capabilities by transferring assets from their balance sheets, or borrowing against those assets to refinance the original loan at a fair market rate. The possibilities of a securitization, its advantages and disadvantages. Particular attention is paid to the securitization crisis in the global financial market. The positive aspects of securitization include: the possibility of financing through the sale of assets to a specially created legal entity; serious impetus to improve the efficiency of the banking sector; opens up direct access to the global financial market; reduces all funding costs; limits credit risk to asset risk; improves the balance sheets of banks, corporations; promotes access to various sources of funding; reduction of the cost of attracted financing; optimization of the structure of the investment portfolio; securitized assets are less subject to event risk. In Russia, the securitization market is growing at a high rate and also has potential in its existence. But since the legal system is underdeveloped in our country, most likely it is the main reason that the ratings of securitization transactions are limited. The upper limit of the rating in the end, perhaps, will be limited by event risks.

Das Schicksal der Kreditsicherheiten bei Eintritt, Ausscheiden und Wechsel von GesbR-Gesellschaftern

Whenever an Austrian GesbR concludes a loan agreement with a bank, then its partners become debtors. If later the partners of the GesbR change, this may also touch the loan agreement and its loan security. § 1201 ABGB regulates the change of partners under the title “partner succession” and is modelled on § 38 UGB. § 1201(1) ABGB stipulates that, if the partners change, the loan agreement will be transferred by law to the new group of partners, and the original loan security will be uphold by law as well. However, according to § 1201(3) ABGB, the loan security provider has the right to object, since such a loan agreement transfer can increase the provider’s liability risk. This article investigates, whether it is necessary to differentiate between different forms of “partner succession” in this context, although § 1201 ABGB seems to treat all partner succession cases in the same way. This article will especially address the relevant legal issues regarding the upholding of the loan security and the right to object of the loan security provider.

The Impact of Lending Standards on Default Rates of Residential Real-Estate Loans

This paper analyses the impact of lending standards for residential real estate (RRE) loans on default rates, using a novel loan-level dataset from the European DataWarehouse (EDW) that covers eight euro area countries. To the best of the authors’ knowledge, this paper is the first to use, for this purpose, a consistent set of loan-level data on loans originated in multiple euro area countries. Previous literature has used either national loan-level data, which does not allow for cross-country comparisons, or aggregate cross-country data. The dataset is first explored through an extensive descriptive analysis and this is followed by static probit regressions. The findings confirm the key influence of lending standards – in particular, loan-to-value and loan-to-income ratios at origination, original loan maturity and borrower employment status – on loan default rates. The impact of other variables, such as interest rate fixation and payment type, varies depending on the country of loan origination. These results are particularly relevant for microprudential supervisors in their ongoing assessment of banks’ credit policies. The highlighted country specificities should be taken into account in macroprudential policymaking.

Does weather matter? How rainfall affects credit risk in agricultural microfinance

Purpose– Small-scale farmers in developing countries are undersupplied with capital. Although microfinance institutions (MFIs) have become well established in developing countries, they have not significantly extended their services to farmers. It is generally believed that this is partly due to the riskiness of lending to farmers. The purpose of this paper is to combine original data from a Madagascan MFI with weather data to estimate the effect of rainfall on the repayment performance of loans granted to farmers.Design/methodology/approach– The basis of the empirical analysis is a unique data set of a commercial MFI in Madagascar and weather data provided by the German Meteorological Service. The repayment performance of loans granted to small-scale farmers is estimated using a two-step estimation approach based on linear probability models (LPMs) and a sequential logit model (SLM).Findings– The results reveal that an excessive amount of rain in the harvest period of rice increases the credit risk of loans granted to small-scale farmers in Madagascar. Furthermore, the results confirm that credit features affect the repayment performance of loans.Research limitations/implications– Since the returns from weather index-based insurance (at least as a future contract) are perfectly correlated with weather events, the authors can set the effect of weather events on the repayment performance of loans equal to the effect of the returns of weather index-based insurance on the repayment performance of loans. Thus, the results imply that weather index-based insurance might have the potential to mitigate a certain part of the risk in agricultural lending.Practical implications– The focus and results of the present study are very relevant for MFIs, potential providers of weather index-based insurances as well as for farmers. The results confirm that weather events are a primary reason for the risk perception of lenders in developing countries toward small-scale farmers. Future research should, hence, concentrate on the development of index-based insurances in agricultural lending and consider interventions on different levels, e.g., insurance on the farm and the bank level.Originality/value– To the knowledge, this is the first study that combines original loan repayment data from a Madagascan MFI with weather data in order to estimate the effect of weather events on the repayment performance of loans granted to farmers. Furthermore, to the knowledge, this is the first study that uses a two-step estimation approach based on LPMs and a SLM to investigate the repayment performance in agricultural lending.

Small-Dollar Installment Loans: An Empirical Analysis

Small-dollar credit is a form of unsecured consumer credit primarily characterized by the low dollar amounts of loans. There has been increasing debate about the benefit and harm to consumers from small-dollar loans, along with recent discussion of greater regulation. Determining the need for and appropriate form of regulation requires an understanding of the current state of the small-dollar credit industry based on actual industry data. One significant change is the shift from single-payment payday loans to multiple-payment loans or installment loans. This paper is the first systematic study of small-dollar installment loans.Our main findings are as follows. A typical installment loan is for $900 and is scheduled to be repaid in 12 biweekly installments over six months. Less than a quarter of borrowers take another loan within 14 days of ending a previous loan. Most borrowers do not keep their loan until maturity. Even repeat borrowers generally either pay off the loan or have it charged off before the maturity date of their original loan. Those who borrow repeatedly are more likely to repay their loans on average and are offered lower interest rates, indicating that at least some of these repeat borrowers are utilizing the opportunity to borrow again based on their past track record of payments. Payment-to-income ratio alone is a poor metric for predicting whether the loan will be paid off or not. Regulation imposing an upper limit on payment-to-income ratio is likely to result in reduced access to credit for a large majority of current borrowers, without a large improvement in loan payoff rates. A payment-to-income limit of 5% would reduce the volume of credit between 55.1% and 92.6%. It would only increase the loan payoff rate by 0.7% (from 72.9% to 73.6%). A payment-to-income limit of 10% will result in reduction of credit between 26.5% and 67.8% without any increase in loan payoff rate.A regulation that prohibits lending based on simple affordability criteria risks substantial reductions in credit availability to a population that often has few available alternatives. A cost-benefit analysis of the proposed regulation requires weighing the cost of reduced access to a financially underserved segment of the population against the benefit of a higher loan payoff rate and lower incidence of indebtedness. Limiting the payment-to-income ratio to 5% would benefit fewer than 1% of borrowers by reducing the incidence of loans that are not paid off, but it would impose costs on 86% of current borrowers, who could not be offered the same credit on the same terms that they now obtain. Raising the permitted ratio can reduce these costs, but it also reduces the benefits, because payment-to-income ratio alone is poor predictor of the likelihood of repayment.

A Real Options Approach to Distressed Property Borrower-Lender Reconciliation

We propose a real option framework to value distressed properties and restructure their loans. Our approach reconciles the interests of borrowers and lenders through a constrained optimization model yielding mutually beneficial restructure terms. Borrowers receive lower loan balances and payments, while lenders replace non-performing loans with performing loans that have higher market values. A numerical illustration shows that the market value of a restructured loan can exceed that of the original non-performing loan and the post-foreclosure cash flows when the lender repossesses the property.

Subprime Mortgage Delinquency and Default Rates by Metropolitan Area: An Analysis by Origination Vintages and Projections for 2007

Subprime mortgage default rates have led to a crisis in the residential mortgage markets unprecedented since the Great Depression. Information reported on these defaults has demonstrated that they vary by location and region. To properly understand the causes of such high rates of mortgage defaults, we undertook this study. It reports on a cross-section analysis of default rates of residential, subprime and Alt-A mortgages aggregated to the metropolitan areas (MSA) level. The hypotheses tested here represent the effects of loan and borrower level characteristics and MSA economic factors, such as MSA employment growth, unemployment rate, household income and housing price changes and their volatility on the level of default rates on subprime mortgages. We test these by origination vintage for 2005 and 2006 and project default rates by MSA into 2007 using 2006 vintage estimated parameters. We find that loan and borrower level characteristics such as loan-to-value ratio weighted by original loan balances, the weighted proportion of loans that have no documentation or the borrowers’ weighted FICO score and MSA economic factors of housing price changes and employment growth are highly statistically significant and economically important in explaining MSA subpirme residential mortgage default rates over the 359 MSAs for 2005 and 2006 vintages. The data used are from Loan Performance data base for 6 million subprime loans separated into 2005 and 2006 vintages, the OFHEO (now FHFA) Housing Price Index and household employment Dept. of Labor. Projections of housing price changes and employment growth for each MSA were used based on a linear extrapolation of the past 9 months of 2006 and the first 3 months of 2007. The main finding is that the projected default rates for all of 2007 are larger than those of 2005 and 2006 on average.

Of Bondage: Debt, Property, and Personhood in Early Modern England by Amanda Bailey

Amanda Bailey. Of Bondage: Debt, Property, and Personhood in Early Modern England. Philadelphia: University of Pennsylvania Press, 2013. x + 209 pages. $55.00Reviewed by Ryan NetzleyAmanda Bailey's Of Bondage begins with two key claims: 1) more people are incarcerated for debt than for crime in the late sixteenth and early seventeenth centuries, so much so that debt suits swamped the legal system (2-3); and 2) the period is more obsessed with debt bondage and the legal apparatus that turns bodies into collateral than it is with the problem of proscribed usury (11). Yet this book is much more expansive and provocative than a careful adjudication of early modern England's changing legal conceptions of debt and its impact on early modern drama. It also hints at the ways in which debt bonds could create the conditions for the conception of slavery (145- 46), as well as a conception of time and investment that would make modern finance capital possible (138). As such, it not only offers interesting readings of late-sixteenth- and early-seventeenth- century plays concerned with debt-Timon of Athens, The Merchant of Venice, Middleton's Michaelmas Term and A Trick to Catch the Old One, Massinger's A New Way to Pay Old Debts, and Fletcher and Massinger's The Custom of the Country. It also suggest that we should revisit some of our basic assumptions about the nature and genesis of debt and money, perhaps in light of David Graeber's magisterial anthropological account of debt and the creation of markets (Bailey, in fact, characterizes her project as an historical examination of Graeber's more sweeping claims [x]).Bailey's account of the distinction between the legal conceptions of debt and usury is especially crisp and timely. Debt bonds in Renaissance England grow out of property law and rest on the assumption that money itself is a nonfungible property, like land. Usury, in contrast, treats money as something that can be expended or wasted. Thus, debt is different than usury in that the latter can keep charging and accumulating interest even after the borrowed sum is used up:In essence, a usurious loan entailed giving away one's property so that another could consume it. Aquinas and the scholastic thinkers objected to charging interest since the lender was, in effect, asking the borrower to pay for something that by definition the borrower would use up. Unlike the one-time payment of a luxury tax, for instance, the establishment of a perpetual, escalating charge for the right to use that which at a certain point no longer existed seemed patently immoral. (54)Debt bonds are of a decidedly different sort. They anchor value in the body of the debtor, but do not allow the bondholder to use or use up her body, precisely because credit and debt are a transfer of nonfungible property (42-43). Thus, they allow for the indefinite imprisonment of the debtor but not her execution because the bond does not convey to the lender absolute ownership, conceived as the right to destroy or waste that which one owns (55). The theory is that one cannot use up the property of another and, therefore, one cannot kill a debtor because he has property in himself:Technically, a creditor could not abdicate ownership over the money he lent, which according to debt jurisprudence could not be wasted or used up as a fungible, like food or wine. In reality, however, debtors spent the coins they borrowed. At the same time, the law allowed an unsatisfied creditor rights in his debtor's person, which as collateral was considered a form of property like the original loan. This meant that while a creditor could not use or destroy his debtor, for instance by forcing him to perform labor or by murdering him, he could detain his debtor indefinitely. (30)Bailey remarks not just a pivotal legal and historical insight here, with ramifications for interpretations of plays and other literature focused on debt and economics, but also emphasizes the period's complex opposition between using and having, an opposition that should haunt and reorient our modern assumptions about exchange, trade, and even the nature of money. …

Do Relationships Matter? Evidence from Loan-Officer Absenteeism

Using exogenous shocks to the relationship between borrowers and loan-officers, we document that borrowers are less likely to receive new loans from the bank and are more likely to apply for credit from other banks when their original loan officers are absent. They also are more likely to miss payments or go into default. These effects are more pronounced when turnovers are unexpected as in the case of sickness leaves or when officers do not have strong incentives to transfer information, e.g. terminated loan officers. However, when given the right situation, e.g. voluntary resignations of loan officers, it seems possible to transfer soft information between employees within the same institution.

Lona v. Citibank (2011) 202 CA4th 89, 134 CR3d 622

A recent California decision allows homeowners to successfully their foreclosure sale because the original loan was unconscionable.