Loan Sales Research Articles

The Dynamics of Loan Sales and Lender Incentives

Abstract How much of a loan should a lender retain, and how do loan sales affect loan performance? We address these questions in a model in which a lender originates loans that it can sell to investors. The lender reduces default risk through screening at origination and monitoring after origination, but is subject to moral hazard. The optimal lender-investor contract can be implemented by requiring the lender to initially retain a share of the loan that it gradually sells to investors, rationalizing loan sales after origination. The model generates novel predictions linking loan and lender characteristics to initial retention, sales dynamics, and loan performance.

How Private Equity Fuels Non-Bank Lending

We show how private equity (PE) buyouts fuel loan sales and non-bank participation in the U.S. syndicated loan market. Combining loan-level data from the Shared National Credit register with buyout deals from Pitchbook, we find that PE-backed loans feature lower bank monitoring, lower loan shares retained by the lead bank, and more loan sales to non-bank financial intermediaries. For PE-backed loans, the sponsor’s reputation and the strength of its relationship with the lead bank further reduce the lead bank’s retained share and monitoring. Our results suggest that PE sponsor engagement substitutes for bank monitoring, allowing banks to retain less skin-in-the game in the loans they originate and to sell greater loan shares to non-banks.

Analysis of the Risk Management of Purchasing Puri Nirana Cigelam Sharia Housing in the Perspective of Islamic Economics

As a housing developer, Puri Nirana Cigelam (PNC) Purwakarta, West Java, offers housing with a sharia concept or sharia housing. Sharia housing carries a Sharia system in its financing contracts without the involvement of Sharia or conventional banks. The purpose of this study is to first analyze the risk management of contract implementation in buying and selling housing at PNC. Second, analyzing the application of risk management in the sale and purchase of Sharia housing loans at PNC. Third, analyze the adherence to Islamic economics principles in applying risk management in PNC. This research is qualitative. At the same time, technical data mining using interviews and observation. Technical data processing by editing, organizing, and discovering results and data analysis obtained descriptively to draw conclusions. The study results in show that the risk management carried out at PNC in its sharia contracts is running well even though it is relatively new and outside property developers' customs and habits in risk management. Risk management in implementing buying and selling credit at PNC is going well for risk policies with a Sharia approach. The principles of Islamic economics also colour the existing risk management policies in PNC Sharia housing; there are elements and values ​​of Sharia economic principles that are quality, non-exploitative, free of usury, prosperous and spiritually valuable.

Peningkatan Orientasi Kewirausahaan dan Inovasi Produk pada UMKM Percetakan di Surabaya

The printing industry in Indonesia is experiencing major changes with the adoption of digital technology. Even though traditional businesses have switched to digital media, challenging market conditions and tough competition from online businesses have resulted in the growth of the printing industry in Indonesia only reaching 5% in 2018. Therefore, community service research was conducted to increase entrepreneurship and product innovation in one of the MSMEs in the printing sector in Surabaya. The research, which was conducted from November 2022 to February 2023, used observation and interview methods to obtain comprehensive information about business practices, entrepreneurial orientation, and product innovation mentoring methods, as well as to help improve entrepreneurial knowledge and skills. The results of this study are, the owner of a printing MSME decided to change their business focus to printing labels, stickers and barcodes using the proceeds from sales of old printing machines and bank loans, and successfully evolved into a printing business with a legal entity CV.

Bank restructuring under asymmetric information: The role of bad loan sales

We study restructuring solutions to the debt overhang problem faced by banks with a deteriorated loan portfolio in the presence of asymmetric information on loan quality. Classical liability restructuring solutions fail to work because banks can overstate the severity of their bad loan problem to obtain additional concessions from existing creditors. A sufficiently large loan sale requirement to the restructuring banks discourages such an opportunistic behavior, so a suitably chosen menu of loan sales cum liability restructuring is able to solve the debt overhang. We discuss the implementation of such a solution for banks funded with insured deposits through loan sales to outside investors supported by an asset protection scheme sponsored by the deposit insurance fund.

Analysis of the Risk Management of Purchasing Puri Nirana Cigelam Sharia Housing in the Perspective of Islamic Economics

As a housing developer, Puri Nirana Cigelam (PNC) Purwakarta, West Java, offers housing with a sharia concept or sharia housing. Sharia housing carries a Sharia system in its financing contracts without the involvement of Sharia or conventional banks. The purpose of this study is to first analyze the risk management of contract implementation in buying and selling housing at PNC. Second, analyzing the application of risk management in the sale and purchase of Sharia housing loans at PNC. Third, analyze the adherence to Islamic economics principles in applying risk management in PNC. This research is qualitative. At the same time, technical data mining using interviews and observation. Technical data processing by editing, organizing, and discovering results and data analysis obtained descriptively to draw conclusions. The study results in show that the risk management carried out at PNC in its sharia contracts is running well even though it is relatively new and outside property developers' customs and habits in risk management. Risk management in implementing buying and selling credit at PNC is going well for risk policies with a Sharia approach. The principles of Islamic economics also colour the existing risk management policies in PNC Sharia housing; there are elements and values ​​of Sharia economic principles that are quality, non-exploitative, free of usury, prosperous and spiritually valuable.

The governance role of lender monitoring: Evidence from Borrowers' tax planning

We posit that lender monitoring increases the general outcomes of borrowers' tax avoidance while reducing opportunistic tax aggressive behaviors. We identify four lender related monitoring measures that could affect borrowers' tax planning. We find firms with a larger portion of loan shares held by lead lenders, with loans led by reputable lenders, and with a single lending relationship to have more tax avoidance and less tax aggressiveness, and firms with loan sales that weaken lenders' monitoring incentives to have less tax avoidance and more tax aggressiveness. We further find the lender monitoring effect on tax planning to be more pronounced for firms closer to financial distress and bankruptcy.

RELIABILITY OF CREDIT SCORES IN LOAN MANAGEMENT IN A DEVELOPING COUNTRY

In developing countries, loan sales for expensive products are very common but highly risky because of frequent payment defaults. Because personal credit histories in these countries are imprecise and insufficient compared with those in developed countries, the use of credit scores in loan sales may be very unreliable. Here, to evaluate the reliability of credit scores, we build a simple cost-benefit model of loan management, dividing credit scores into 10 credit score classes (CSCs). As CSC increases, the rough net benefits increase because the total losses caused by payment defaults decrease. The use of credit scores in loan sales is thus found to be highly reliable in developing countries. Combining credit scores with newly developed sources (e.g., mobile phones) may provide highly accurate estimates for loan management.

A Comparative Legal Analysis on Non-Performing Loans Definition and its Sale Framework in Malaysia, Thailand, Indonesia and Philippines

With Covid-19 banking and financial relief measures in the region recently came to an end, it is viewed that non-performing loans ratio’s may increase and there may be a more proactive behaviour by financial institutions in dealing with their non-performing assets including disposing their non-performing loans comprising of both unsecured and secured products by way of sale and purchase to third parties. The purpose of this article is to analyse the current legal definition of non-performing loans in selected Southeast Asian countries together with international organisations recommended definitions. The article will further examine selected Southeast Asian prevailing legislations and regulations that governs the sale of non-performing loans. The author intends to adopt a multi-method research strategy primarily doctrinal legal research as well as qualitative research approach. This article aims to contribute to the legal fraternity and people in general with an overview of the current position in selected Southeast Asian countries.

The impact of non-performing loan sales on the stock market: The role of corporate governance in an emerging market

Over the past decade, one popular way for Turkish banks to remove nonperforming loans (NPLs) from their balance sheets has been to sell them to asset management companies. We examine the short-term market reaction to the announcements of such NPL sales over the period 2009–2019. We also consider the role of corporate governance in these transactions. To do so, we compare banks included in the Corporate Governance Index (XCORP) with other banks. Our event-study results suggest that the market reacts positively to NPL sales and that this reaction is more pronounced when the selling bank has better corporate governance. More important, the stocks of these banks are efficiently priced, while the non-XCORP banks have significant information leakage. We further find that good corporate governance is a key determinant of the relationship between the valuation effect of NPL sales announcements and the size/transactional properties of NPL portfolios.

Credit Financing of Micro-Enterprises and Farmers by Commercial and Cooperative Banks in Poland: Does the Use of Investment and Working Capital Loans Change During the COVID-19 Pandemic?

Purpose – The paper aims to assess the credit financing of microenterprises and farmers by commercial and cooperative banks in pre-COVID-19 and COVID-19 subperiods. Research method – In the study, we apply the Kruskal-Wallis test and Wilcoxon ranksum pairwise comparison test with the adjustment based on the Benjamini and Hochberg method to check whether there are significant differences in median values of banking loan categories for microenterprises and farmers among commercial and cooperative banks in the pre-COVID-19 and COVID-19 periods. Results – We observe that microenterprises mostly use commercial banks, while farmers depend majorly on cooperative banks. Additionally, farmers use investment loans more often than microenterprises. We show a significant decline in loan sales and enquiries among microenterprises and farmers during COVID-19. Moreover, we observe the median values of all analysed categories show significant differences between commercial and cooperative banks. It concerns both investment and working capital loans. Originality /value /implications /recommendations – Our contribution is that we analyse this issue from the perspective of leading suppliers offering banking loans, i.e., commercial and cooperative banks. We detect whether analysed banking loan categories differ significantly in the group of microenterprises and farmers across commercial and cooperative banks in Poland in the above-mentioned periods. To our knowledge, there are no similar studies. The results of our study might be helpful for banking institutions and policymakers in the context of a potential future pandemic or crisis situation.

Have Your Cake and Eat It: The Effect of the IFRS 9 Transition on Non-Performing Loan Sales

Have Your Cake and Eat It: The Effect of the IFRS 9 Transition on Non-Performing Loan Sales

Use of Contingent Payment Mechanism in Nonperforming Loan Auctions

This paper identifies a unique application of the contingent payment auction mechanism by banks in the sale of nonperforming loans to privately-held asset management companies. We demonstrate a lack of separation in the auction mechanism used by banks, with the security bid being a combination of cash and debt in a predetermined proportion, leading to an inefficient public policy outcome. Our findings reveal the possibility of moral hazard and adverse selection associated with the contingent payment auction mechanism in the above setting. We also highlight issues involved in considering auction bids as fair market value.

U.S. Federal Income Taxation of U.S. Branches of Foreign Banks: Selected Issues and Perspectives

An earlier version of this article was presented to the Tax Club in New York in December 1993.The title of this article notwithstanding, the United States does not in fact tax the U.S. branches of foreign banks; branches are not regarded as distinct entities for most federal income tax purposes. Rather, the United States taxes foreign corporations (including banks) that are engaged in a trade or business within the United States on taxable income that is effectively connected with the conduct of that U.S. trade or business.But the story is not so simple. Various provisions of the Code and Regulations-including especially Regulations section 1.882-5, providing for the determination of the deductible interest expense of a foreign bank attributable to its U.S. trade or business, the branch profits tax, and the branch level interest tax-treat U.S. branches of foreign banks as separate entities, to one degree or another. Also, most income tax treaties provide that there should be attributed to a U.S. branch (a permanent establishment) the business profits that it might be expected to earn if it were a distinct and separate entity.Moreover, in recent years, the nature of international banking has evolved considerably. Many banks now actively trade and deal in foreign currencies; in interest rate and foreign currency forward and futures contracts, options, and swaps; and in various equity- and commodity-derivative products, as well as in securities. These activities have resulted in a tremendous expansion of the volume and type of transactions involving multiple branches of these banks, both in providing financial products to customers and in hedging the risks assumed by the banks. The involvement of multiple branches in these transactions takes a variety of forms, including transactions between branches (such as swaps, sales of property, loans, and forward contracts) and joint efforts to provide products to customers. These developments have placed considerable pressure on the concepts that traditionally have been applied in determining the amount of a foreign bank's taxable income for U.S. federal income tax purposes, including the extent to which a branch should be disregarded as a separate entity.

Palliative care and catastrophic costs in Malawi after a diagnosis of advanced cancer: a prospective cohort study

SummaryBackgroundInclusive universal health coverage requires access to quality health care without financial barriers. Receipt of palliative care after advanced cancer diagnosis might reduce household poverty, but evidence from low-income and middle-income settings is sparse.MethodsIn this prospective study, the primary objective was to investigate total household costs of cancer-related health care after a diagnosis of advanced cancer, with and without the receipt of palliative care. Households comprising patients and their unpaid family caregiver were recruited into a cohort study at Queen Elizabeth Central Hospital in Malawi, between Jan 16 and July 31, 2019. Costs of cancer-related health-care use (including palliative care) and health-related quality-of-life were recorded over 6 months. Regression analysis explored associations between receipt of palliative care and total household costs on health care as a proportion of household income. Catastrophic costs, defined as 20% or more of total household income, sale of assets and loans taken out (dissaving), and their association with palliative care were computed.FindingsWe recruited 150 households. At 6 months, data from 89 (59%) of 150 households were available, comprising 89 patients (median age 50 years, 79% female) and 64 caregivers (median age 40 years, 73% female). Patients in 55 (37%) of the 150 households died and six (4%) were lost to follow-up. 19 (21%) of 89 households received palliative care. Catastrophic costs were experienced by nine (47%) of 19 households who received palliative care versus 48 (69%) of 70 households who did not (relative risk 0·69, 95% CI 0·42 to 1·14, p=0·109). Palliative care was associated with substantially reduced dissaving (median US$11, IQR 0 to 30 vs $34, 14 to 75; p=0·005). The mean difference in total household costs on cancer-related health care with receipt of palliative care was −36% (95% CI −94 to 594; p=0·707).InterpretationVulnerable households in low-income countries are subject to catastrophic health-related costs following a diagnosis of advanced cancer. Palliative care might result in reduced dissaving in these households. Further consideration of the economic benefits of palliative care is justified.FundingWellcome Trust; National Institute for Health Research; and EMMS International.

بیع الوفاء فی الفقه الإسلامی

يتناول البحث بالحديث أحکام بيع الوفاء، وهو نوع من البيوع التي انتشرت في العصر الحاضر بين الأفراد والشرکات؛ وقد اختلف الفقهاء المتقدمون في تکييفه وحکمه الشرعي، وقد بين البحث أحکام هذا النوع من البيوع في مطالب متعددة، فبينت في المطلب الأول تعريف بيع الوفاء، وبينت في المطلب الثاني خصائص بيع الوفاء، وتحدثت في المطلب الثالث عن حکم بيع الوفاء، ثم عرجت في المطلب الرابع على بيان موقف قرار مجمع الفقه الإسلامي بشأن بيع الوفاء، وأخيرا بينت في المطلب الخامس الأصل الذي اعتمد عليه المجمع في قراره بشأن بيع الوفاء، وختمت البحث بأهم النتائج التي توصلت إليها من خلاله. The study focuses on the legal rulings of Bay’ Al-Wafa’ (Loan Sale), which is a prevalent type of sale among the individuals and companies. Earlier jurists differed in opinion regarding its classification and its legal rulings. So, this study illustrates the different forms of this type of sale, highlighting in the first chapter its definition, and in the second its characteristics. Then, the third chapter addresses the legal ruling of Bay’ Al-Wafa’, while the fourth chapter addresses the stance of the Islamic Fiqh Academy on it. Finally, the fifth chapter investigates the grounds on which the Islamic FiqhAcademy’s respective decision is based. As for the conclusion, it introduces the key findings.

Public audit oversight and the originate-to-distribute model

The originate-to-distribute (OTD) model, in which the originators of mortgages sell or securitize the mortgages to third parties, likely contributed to the 2008 financial crisis. Auditors were blamed for permitting clients to understate the risks of the model in their financial reports, fostering undisciplined lending. We investigate whether public audit oversight influences OTD lending by promoting more vigilant audits of the financial reports of originators. Using a difference-in-differences design prior to the financial crisis, we find reduced OTD lending by banks after the Public Company Accounting Oversight Board (PCAOB) criticizes their auditors’ audits of financial reports regarding OTD transactions. The reduction is greater for banks with poorer risk controls and stronger incentives to manage earnings. We also find a reduction in gains on loan sales and securitizations. The results suggest that PCAOB inspections can help discipline OTD lending, a real effect of public audit oversight in the United States.

Personal Loan Sales Forecasting Through Time Series Analysis

Almost all state enterprises and private sector companies try to foresee future expectations. From the viewpoint of economic, productive, and efficient business management, this is highly important. By making rational decisions, all enterprises aim to rich maximum profitability by taking sales, cost, human resource needs, profits into account. For this reason, enterprises have to make reliable and reasonable forecasts to take the right decisions. Such forecasts might be used in budgeting, cost, and profit analysis. Forecasted scenarios might come true in the future with a great likelihood. The researcher utilizing time series analysis assumes that all findings that come out will be almost the same happened in the past. Analyzing the time series consist of four aims such as defining, modeling forecasting, and controlling. To define a series, it is needed to compute definitional statistics and to draw its graphic. The second purpose of analyzing the time series is to find the appropriate model of the time series. With that work called “Time series and application to sale data”, it is tried to make a suitable guess model by analyzing the data of personal loans of a bank 2004-2010 sale data based on unit. During the stagnation stage of the sequence correlogram and root, analyses are performed. The sequence is analyzed with the help of the Eviews 5,1 program. At the end of the survey, it is seen that natural logarithmic personal loan sale sequences are at their level and in the first gap it is not constant and it is also seen that when the second gap is taken, the constant is obtained. The sequence of which the second gap is taken is shown based on time-way graphs and correlogram. When the constant is provided, the guessed model is formed by taking the second gap. The suitability of the model is observed by the correlogram, Akaike information criteria (AIC), and Schwarz information criteria (SIC) merits.

Monitoring in Originate-to-Distribute Lending: Reputation versus Skin in the Game

Abstract Banks face liquidity and capital pressures that favor selling off the loans they originate, but loan sales undermine their monitoring incentives. A bank’s loan default history is a noisy measure of its past monitoring choices, which can serve as a reputation mechanism to incentivize current monitoring. In equilibrium, higher reputation banks monitor (weakly) more intensively; if retention is credible, they generally retain less of the loans they originate. Monitoring is difficult to sustain in periods with uncommonly large spikes in loan demand (“booms”), especially for low-reputation banks, which are more likely to accommodate boom demand and forgo monitoring.

Оцінка умов укладання між пов'язаними особами угод купівлі-продажу кредитних портфелів як інструмент пруденційного нагляду національного регулятора

The article proposes to use the market value of the loan portfolio as a criterion for compliance with the terms of its purchase and sale agreements, between related parties, the normal market and use it as a tool in the supervision of the national regulator. The developed methodological support for assessing the compliance of the conditions for concluding purchase and sale agreements of loan portfolios, between related parties, normal market conditions is based on the characteristics of the elements, properties and features of valuation as an economic category. The proposed algorithm for assessing the terms of conclusion between related parties of purchase and sale of loan portfolios for their compliance with normal market conditions allows to take into account the essential characteristics of loans and complies with current legislation of Ukraine governing banking. On the example of contingent portfolios of cash and consumer loans, the stages of forecasting cash flows from the payment of outstanding balance of principal, interest, commissions and other payments on debt service, as well as income from the sale of default loans are disclosed.