Retail Loans Research Articles

Retail Loans for Residential Solar in India: An Alternative Financial Product

Retail Loans for Residential Solar in India: An Alternative Financial Product

Measuring Effects of Interest Rate Fluctuations on Retail Loan Holder in Metropolitan City: Evidence from Nepal

Background: Interest rate fluctuations have long been a critical research topic, particularly in relation to retail loan holders. In Nepal, the status of retail loans has been progressively improving, making it essential to understand how interest rate changes affect retail loan borrowers in Kathmandu Valley. Objective: This study aims to investigate the impact of interest rate fluctuations on retail loan holders in Kathmandu Valley. It seeks to determine how these fluctuations influence banking performance and retail loan products in the context of Nepalese financial institutions. Method: A descriptive research design was employed, focusing on retail loan holders from Nepalese financial institutions in Kathmandu Valley. A sample of 383 retail loan borrowers was selected using simple random sampling. Data were collected via a structured questionnaire. The analysis involved descriptive statistics, correlation, regression, as well as pre-estimation and post-estimation techniques. Result: The findings indicate that interest rate fluctuations have a positive and significant impact on retail loan products offered by Nepalese banking institutions. Higher interest rates tend to enhance retail loan offerings, contributing to improved banking performance and increased creativity in loan practices. Conclusion: The study underscores the positive role of interest rate fluctuations in shaping retail loan products and banking performance in Nepal. It suggests that financial institutions could benefit from adjusting their interest rates to foster better loan practices and improve overall performance. For economic benefit, banks should consider lowering interest rates and providing attractive returns to depositors to balance their profitability and enhance financial stability. This research provides a foundation for further academic exploration into the effects of interest rates on retail loan behavior. Paper Types: Research Paper Keywords: Interest rate, Retail banking products, Ordered logistic model, Kathmandu valley. JEL Classification: G1, E43, G21 and G41

Financing a Middle Class Utopia: Income and Retail Loans in Kathmandu

Financing a Middle Class Utopia: Income and Retail Loans in Kathmandu

Priority and non-priority sector GNPAS in Indian commercial banks: a comparison between sub-sectors

Purpose This study aims to examine the impact and contribution of priority and non-priority sectors, as well as their sub-sectors, on the gross non-performing assets of public, private and foreign sector banks. Design/methodology/approach The Reserve Bank of India's database on the Indian economy is used to retrieve data over 13 years (2008–2021). Public sector (12), private sector (22) and foreign sector (44) banks are represented in the sample. Two-way ANOVA, multiple regression and panel regression statistical techniques are used in SPSS and EViews to examine the data. Further, the results are also validated by using robustness testing by applying the fully modified ordinary least square (FMOLS) and dynamic least square (DOLS) regression. Findings The results showed that, for private and foreign banks, the non-priority sector makes up the majority of the total gross non-performing assets, although both the priority and non-priority sectors are substantial for public sector banks. The largest contributors to the total gross non-performing assets in public, private and foreign banks are industries, agriculture and micro and small businesses. The FMOLS displays robustness results that are qualitatively similar to the baseline result. Practical implications Based on the study's findings about the patterns of non-performing assets originating from these specific industries, banks might improve the way in which these advanced loans are managed. Originality/value There has not been much research done on the subject of sub-sector-specific non-performing assets and how they affect total gross non-performing assets across the three sector banks. The study's primary focus will be on the issue of non-performing assets in the priority’s and non-priority’s sub-sectors, namely, agricultural, micro and small businesses, food credit, industries, services, retail loans and other priority and non-priority sectors.

The effects of state utility shutoff moratoria on credit delinquencies during the COVID-19 pandemic

The number of people in financial distress was expected to increase in the wake of the COVID-19 pandemic, with the most vulnerable populations likely suffering the most. To protect the most disadvantaged, states implemented emergency measures such as utility shutoff moratoria, which prevented utility companies from disconnecting families’ energy and water services due to non-payment. Using credit bureau data on five million consumers, we investigate how a utility shutoff moratorium impacted consumers’ credit delinquencies. We find that adults living in states that implemented such protections were less likely to be late in the payment of their credit cards and auto & retail loan bills during the pandemic. We also find that a state utility shutoff moratorium reduced the likelihood of consumers’ unpaid debt being sent to collections during the pandemic. Residents of majority-Black communities benefited the most from a utility shutoff moratorium. These results suggest that families in states with a utility shutoff moratorium used this economic relief to pay their financial obligations in time.

Trends of Allocation of Retail Loans by Commercial Banks

The article analyzes the trends in the distribution of retail loans by commercial banks, identifies problems in this direction, and presents practical suggestions and recommendations for their improvement.

Концентрация на региональных рынках кредитования населения России в условиях роста цифровизации банковских услуг

Due to the dominance of the largest banks, the issue of increasing concentration and monopolisation of the Russian banking sector is discussed in regards to the competition in the industry. The Bank of Russia set the task to increase competition and reduce concentration in the financial sector, including at the regional level. This task can potentially be solved using new financial technologies, digital banking services and remote access technologies. The paper aims to assess the dynamics of concentration in local consumer loan markets in 2015–2021, as well as to answer how new financial technologies and digitalisation can increase competition in the banking sector at the regional level. The study calculated concentration indices and number of banks in consumer loan markets of Russian regions and the country as a whole. To this end, data from the website of the Bank of Russia, both for the retail loan market and the housing loan market, were analysed. The findings show that concentration indices did not decrease during this period. Simultaneously, the regional average number of banks issuing consumer loans decreased less than the total number of banks due to the entry of some banks into new regional markets. This means that the expansion of remaining banks to more regions, including through digitalisation and remote methods, has the potential to increase competition in the industry. However, at this point, only few consumer loans and deposits were provided by banks that do not have branches in a given region. Therefore, there is little evidence to suggest that new financial technologies are already increasing competition in the banking sector of Russian regions.

An intelligent multi-level optimisation model for retail loan portfolio

An intelligent multi-level optimisation model for retail loan portfolio

Classification of retail loans using decision tree

While there is extensive literature on the prediction of corporate bankruptcies, there is little literature on the classification of retail borrowers. There are several ways to analyse the data, which may yield different results. In this paper, my aim is to predict the default of household loans using decision tree. I found one significant explanatory variable, which was the ratio of the repayment to the contract amount. For my analysis I used two samples with different compositions. Both have high classification accuracy. Overall, the second model is better, with a classification accuracy of 84,4%.

Critical success factors in asset securitisation in banks in India

Asset securitization is the structured business process whereby Banks’ loan assets and other receivables are packaged and sold in the form of ‘asset-backed securities’(ABS), thereby loan originators transfer some of their loan-risks to third parties. Asset securitization considers a pool of performing/non-performing retail loan assets and through financial engineering models, transforms them to tradable security by involving a Special Purpose Vehicle (SPV) that issues Negotiable Instruments (like Bonds/Promissory Notes/CPs) called Pass Through Certificates (PTCs) to Investors. In Indian context, most asset securitisation deals are done on Direct Assignment (DA) basis through retail loans-asset pool transfer to pool-buyer Bank with no SPV in between and hence no tradable security. This Research study analysed ‘Critical Success Factors (CSFs)’ in Indian model of asset securitisation (Li Liu, 2021) and in the process also analysed its associated business-processes, systematic-risks, Issues & challenges. This study sourced its primary data from hands-on deal-practitioners and Subject Matter Experts (SMEs) associated with deal-participating entities and through qualitative data analysis technique of Narrative analysis and Applied Conversation analysis, the research-findings are concluded. The CSFs include - key business benefits including achieving lending targets & compliance norms, supporting IT systems, immediate liquidity support (Chilukani Munender Reddy, 2018). Towards future prospects and challenges (Lakshman Alles, 2021), this study suggests for setting up ‘Centre of Excellence (CoE) for Assets Securitisation’ in each bank, for ‘building product-expertise and evolve appropriate asset-pricing-models for deals and PTC securities’. The study also suggests for an ‘Enabling IT systems’ that support automated deal-processes, risk-monitoring and compliance tracking’. These two aspects would facilitate for better deal-transparency and for making informed decisions by deal stake-holders.

Retail loan pricing determinants in Russia

The research relies on the uniquely extracted dataset of loan offered rates at the start of 2022. We justify that the larger banks are more prone to disclose such offers. Content-wise we are able to disentangle the loan-specific credit risk factors and the bank risk-appetite drivers. We show that banks using own data and models to compute prudential ratios (IRB-banks) tend to evaluate the credit risk more conservatively than the rest of the banks.

Macroprudential regulatory policies with a dominant-bank oligopoly and fringe banks

This paper develops a model in which a handful of dominant banks mutually engage in head-to-head rivalry while acting as loan-quantity-setting leaders vis-à-vis numerous fringe banks. Under the most likely calibration of parameters governing behavior of the two groups, we find that increases in capital requirements substantially reduce equilibrium loan volumes and raise the market retail loan rate, while increases in tax rates tend to raise the market loan rate but not in a way that significantly alters aggregate lending. Key parameters influencing outcomes in alternative calibrations are the number of dominant banks and the market loan demand elasticity.

A Practical Guide to the Valuation of Coupon-Bearing Fixed Income Securities

The purpose of this article is to illustrate the use of reduced-form credit risk models for valuing defaultable coupon-bearing securities, such as risky sovereign bonds, corporate bonds, and retail loans like auto loans and mortgage loans. We focus on issues in the application of these models and not the mathematical derivations of the formulas employed.

A risk-neutral approach to the RAROC method of loan pricing using account-level data

PurposeThis paper has used account-level data of corporate and retail borrowers, assessed their credit risk through the risk-neutral principle and examined its implication on loan pricing.Design/methodology/approachIt derives the capital charge and credit risk-premium for expected and unexpected losses through a risk-neutral approach. It estimates the risk-adjusted return on capital as the pricing principle for loans. Using GMM regression, the article has assessed the determinants of risk-based pricing.FindingsIt has been found that risk-premium is not reflected in the current loan pricing policy as per Basel II norms. However, the GMM estimation on RAROC can price risk premium and probability of default, LGD, risk weight, bank beta and capital adequacy, which are the prime determinants of loan pricing. The average RAROC for retail loans is more than that of corporate loans despite the same level of risk capital requirement for both categories of loans. The robustness tests indicate that the RAROC method of loan pricing and its determinants are consistent against the time and type of borrowers.Research limitations/implicationsThe RAROC method of pricing effectively assesses the inherent risk associated with loans. Though the empirical findings are confined to the sample bank, the model can be used for any bank implementing the Basel principle of risk and capital assessments.Practical implicationsThe article has developed and validated the model for estimating RAROC, as per Basel II guidelines, for loan pricing that any bank can use.Social implicationsIt has developed the risk-based loan pricing model for retail and corporate borrowers. It has significant practical utility for banks to manage their risk, reduce their losses and productively utilise the public deposits for societal developments.Originality/valueThe article empirically validated the risk-neutral pricing principle using a unique 1,520 retail and corporate borrowers dataset.

Fair Value of Retail Loans: Are We Following IFRS9 or Misinterpreting It?

This study examines the accounting treatment applied to retail loans using a multiplication factor of 1.3. Answers are sought to the following questions: What is the correct IFRS accounting treatment of loans with a 1.3 multiplication factor in their interest rate, which have appeared in the Hungarian banking sector since 2016? Does the sector report these loans correctly? Is there a possibility for substancebased accounting treatment? How does the different accounting treatment of identical loan types affect the comparability of banks’ financial statements? After discussing the results from the literature and presenting the main features of the loans under review, the methodology of the study is described, before turning to the dilemmas and consequences of the accounting treatment. In this context, the IFRS requirements applicable when choosing the measurement principle for the loans concerned are also analysed. After drawing the conclusions, the paper argues in favour of measurement at amortised cost.

Logistic Regression or Neural Network? Which Provides Better Results for Retail Loans?

Logistic Regression or Neural Network? Which Provides Better Results for Retail Loans?

A 2-Factor Model for Inclusion of Voluntary Termination Risk in Automotive Retail Loan Portfolios

A 2-Factor Model for Inclusion of Voluntary Termination Risk in Automotive Retail Loan Portfolios

Retail lending to commercial banks: current state and business models of development

This article explores the current state of consumer bank lending, focusing on the quantitative and qualitative indicators of the banking sector, the ecosystems of commercial banks. In the course of the study, statistical data on the loan portfolio and overdue debts of the banking sector of the Republic of Kazakhstan, on the structure of overdue debts on bank retail loans issued for consumer purposes were used and analyzed. The tendencies of bank consumer crediting by the terms and sizes of the lending rate are determined. The influencing factors on consumer-clients in retail lending have been established, and monitoring of the ecosystems of leading domestic commercial banks has been prepared. Based on the analysis of the current state of retail lending for consumer purposes in Kazakhstan, relevant recommendations are given

Forecasting Non-Performing Retail Loans During the Covid-19 Pandemic: the Effect of Forbearance on Model Error

Forecasting Non-Performing Retail Loans During the Covid-19 Pandemic: the Effect of Forbearance on Model Error

Overview of the current state of consumer lending in commercial banks of Ukraine and its organizational and economic support

The paper gives the theoretical basis of the peculiarities of the process of consumer lending in commercial banks – defines the economic essence of consumer credit, its objects, tools, stages of implementation and mechanisms for repayment of credit debt. An overview of the current state and development of bank consumer lending in Ukraine is presented. An analysis of the dynamics of assets and loan portfolio of Ukrainian banks, namely: analysis of loans to individuals and analysis of the volume and share of consumer loans in the total loans to individuals in the loan portfolio and assets of banks in 2015–2021. The peculiarities of the formation of the retail loan portfolio of Ukrainian banks are studied and the directions of improving the level of organizational and economic support of consumer lending of Ukrainian banks are outlined. A necessary condition for ensuring the stability of the banking system is the development of bank lending. Constant changes in the market of banking services and openness to the external environment require banks to constantly search for markets and lending mechanisms, including consumer credit. It is the development of consumer lending that determines the formation and increase of effective demand of the population, and thus the development of the economy as a whole. Therefore, the intensification of long-term bank lending available to borrowers is one of the most important tasks of Ukraine's strategic development. In recent years, there has been a growth trend in the consumer lending sector, which, on the one hand, has become an indicator of intensification of banks' lending, but on the other hand, rapid growth in retail lending has led to increased debt and unprofitable individual banks. Therefore, there is an objective need to increase the level of organizational and economic support for consumer lending to Ukrainian banks in order to avoid credit risk. An important way to increase the profitability of consumer lending is to improve the quality of loans. To this end, it is recommended to improve the work of the bank's departments for monitoring problem loans, the use of scoring systems, the introduction of insurance of financial risks of banks on card lending.