Collateral, type of lender and relationship banking as determinants of credit risk (original) (raw)
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Collateral, type of lender and relationship banking as determinants of credit risk q
This paper analyses the determinants of the probability of default (PD) of bank loans. We focus the discussion on the role of a limited set of variables (collateral, type of lender and bank-borrower relationship) while controlling for the other explanatory variables. The study uses information on the more than three million loans entered into by Spanish credit institutions over a complete business cycle (1988-2000) collected by the Bank of Spain's Credit Register (Central de Informaci on de Riesgos). We find that collateralised loans have a higher PD, loans granted by savings banks are riskier and, finally, that a close bank-borrower relationship increases the willingness to take more risk.
Loan characteristics and credit risk
2003
The aim of this paper is to study the impact that certain characteristics of loans (i.e. collateral, maturity, size, type of lender and closeness of the customer-bank relationship) have on default rates (PD). The results allow us to discern between the various theoretical approaches regarding the relationship between loan characteristics and credit risk and are generally in line with the scarce empirical evidence at international level. However, in some cases (particularly, savings banks) there are substantial differences that may have their origin in certain specific features of the Spanish financial system. This study uses information on the more than three million loans entered into by Spanish credit institutions over a complete business cycle (1988 to 2000) collected by the Bank of Spain's Credit Register (Central de Información de Riesgos). In addition to its academic interest, the result of this study may be of use to banking supervisors interested in monitoring institutions' credit risk and banking regulators that wish to link capital requirements and provisions more closely to the risk actually incurred by institutions.
Collateral, default risk, and relationship lending: an empirical study on financial contracting
2000
This paper provides new insights into the nature of relationship lending by analyzing the role of collateral and its real effects with respect to workout activities. We use a unique data set based on credit files of five leading German banks, thus relying on real information used in the process of bank credit decision-making. In particular, risk assessment is derived from bank internal borrower ratings and a new proxy for identifying relationship lending is used. Furthermore, our data set contains information on banks workout activities relating to borrowers facing financial distress.
Journal of Financial Economics, 2006
We estimate a comprehensive model of the determinants of collateral in loans extended to business firms. We use a panel data on a sample of bank loans to Spanish firms from 1984 to 2002. Consistent with theories that view collateral as a solution to adverse selection problems, our results provide direct evidence of a negative association between collateral and a borrower's risk. We also present evidence on previously unexplored determinants of collateral such as credit market competition, lender type, and the business cycle. r
The chapter answer the following questions: Was there a series of characteristics already manifiest before the crisis which would make a group of banks especially vulnerable to the macroeconomic shock given by the withdrawal of depositis which happened afterward? On the other hand, was the homogeneity of the financial institutions such before the crisis so that the banks had their problems in a more or less random way? Are there any differential characteristics shared by those institutions which seemed to have a lower degree of resistence to the stress generated by the crisis? I use Wilcoxon-Mann-Whitney Ranking Test to test the difference between banks groups of the distribution of values of characteristics. I compute a ranking of default probabilities of all the mutual banks at that date.
Determinants of Default Ratios in the Segment of Loans to Households in Spain
2012
Abstract: In this paper we present the estimation results of a dynamic panel data model that explains the dynamic behaviour of default ratios in Spain for loans extended to the household sector. We estimate the models for two alternative definitions of default and for two different loan categories. The dataset consists of a panel of 50 provinces and covers the period 1984-2009.
Collateralization of business loans: Testing the prediction of theories
Research in International Business and Finance, 2017
Using confidential data on a large sample of relationship lending, we analyze the determining factors of the collateralization of business loans from banks, distinguishing between firms with observable risk and firms with hidden information. We achieve three main results. First, we provide evidence that observably riskier borrowers are encouraged to give more collateral to banks to obtain a loan, whereas firms with hidden information are less risky borrowers, offering collateral to signal their quality. Second, we show that relationship banking has a direct impact on the use of collateral and produces moderating effects on the other determining factors. Finally, we observe that distant bank branches-i.e., branches that encounter greater difficulties collecting soft information and obtaining site-specific data from headquarters-are more likely to require collateral than local bank branches.