Bank competition and credit markets in transition economies

Hainz, Christa

doi:10.1016/s0147-5967(03)00021-0

Cited by 61 publications

(36 citation statements)

References 17 publications

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“…In transition countries, collateral plays a larger role than in developed ones, which might be explained by higher information asymmetries, a lower liquidation payoff, or lower banking market competition (Hainz, 2003). Interestingly, small firms in transition countries are less likely to pledge collateral than medium-sized firms.…”

Section: Empirical Literaturementioning

confidence: 99%

“…First, lender-based theories postulate that collateral serves to increase the lender's profit or expected return (Binswanger, 1982). Profits may increase due to a bank's market power (Hainz, 2003) or due to its information advantage over distant lenders in evaluating credit risk (Inderst and Mueller, 2007). As we do not observe local banking market structures, we do not directly test lenderbased theories.…”

Section: Theoretical Literaturementioning

confidence: 99%

“…Accordingly collateral is part of many if not most (business) loan contracts in mature markets (Steijvers and Voordeckers, 2009). Due to opaque information and weak enforcement, theory suggests that the request for collateral is even higher in less developed markets (Bae and Goyal 2009, Behr et al 2011, Hainz, 2003, Menkhoff et al, 2006. This high importance of collateral results into a problem for relatively poor borrowers in emerging markets: collateral requirements are expected to be particularly high but their ability to provide collateral is comparatively low.…”

Section: Introductionmentioning

confidence: 99%

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Collateral and its substitutes in emerging markets’ lending

Menkhoff

Neuberger

Rungruxsirivorn

2012

Journal of Banking & Finance

114

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Collateral and its Substitutes in Emerging Markets' Lending Abstract Due to opaque information and weak enforcement in emerging loan markets, the need for collateral is high, whereas borrowers lack adequate assets to pledge as collateral. How is this puzzle solved? We find for a representative sample from Northeast Thailand that indeed most loans do not include any tangible assets as collateral. Instead, lenders enforce collateral-free loans through third-party guarantees and relationship lending, but also through modifying loan terms, such as reducing loan size. Guarantees are the relatively most important substitute, they reduce collateral requirements independently of relationship lending and they are more often used by formal financial institutions. Terms of use: Documents in EconStor mayJEL-Code: G210, O160.

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Section: Empirical Literaturementioning

confidence: 99%

Section: Theoretical Literaturementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Collateral and its substitutes in emerging markets’ lending

Menkhoff

Neuberger

Rungruxsirivorn

2012

Journal of Banking & Finance

114

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“…For a model emphasizing the importance of market power in transition banking, see Hainz (2002). 4 This approach is thus semi-structural and in this respect is similar to that of Panzar-Ross which has often been applied to the banking industry (see De Bandt and Davis (2000) for a recent example).…”

Section: An Econometric Model Of Banks' Revenues and Costsmentioning

confidence: 99%

Bank Performance in Transition Economies

2003

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This paper examines the performance of 515 banks in 16 transition economies for the years 1994 -99 based on their public financial accounts. We first examine lending behaviour and probability distribution of bank profitability to determine whether these banks exhibit behaviour and performance associated with excessive risk-taking. While we do not find evidence of excessive risk taking on average where there is significant progress in banking and related enterprise reforms, there may be a minority of poorly capitalised banks that do take excessive risks, particularly where progress in reform is less advanced. The paper then estimates cost and revenue functions based on a model of banks as multiproduct firms. The results indicate that banks' performance differs significantly depending on the reform environment, as well as the competitive conditions, in which they operate. Banks with high market shares have higher costs and achieve lower margins on their loan and deposit activities. Where there has been significant progress in banking and related enterprise reforms, banks are making comfortable margins on loans and appear to be offering competitive margins on deposits, though they are still achieving overall negative returns on equity. By contrast, when substantial reforms have not been undertaken, banks have been sustaining high negative returns on loans, largely at the expense of depositors; in effect they have been able to appropriate much of the tax that inflation levies on nominal deposits, and have been using this revenue to prop up their weak loan portfolios. Overall interest margins are declining over time but are substantially higher in low reform environments. The results indicate that an appropriate policy and regulatory framework may be a necessary condition for significant progress to be made. AbstractThis paper examines the performance of 515 banks in 16 transition economies for the years 1994 -99 based on their public financial accounts. We first examine lending behaviour and probability distribution of bank profitability to determine whether these banks exhibit behaviour and performance associated with excessive risk-taking. While we do not find evidence of excessive risk taking on average where there is significant progress in banking and related enterprise reforms, there may be a minority of poorly capitalised banks that do take excessive risks, particularly where progress in reform is less advanced. The paper then estimates cost and revenue functions based on a model of banks as multi-product firms. The results indicate that banks' performance differs significantly depending on the reform environment, as well as the competitive conditions, in which they operate. Banks with high market shares have higher costs and achieve lower margins on their loan and deposit activities. Where there has been significant progress in banking and related enterprise reforms, banks are making comfortable margins on loans and appear to be offering competitive margins on deposits, though they are still achievi...

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“…Bank competition influences the terms of a credit contract and, as such, reduces the amount of collateral demanded (Berlin and Butler, 2002;Hainz, 2003). At the same time, the possibility of collateralization helps to increase bank competition.…”

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confidence: 99%

The Effect of Bank Competition on the Bank's Incentive to Collateralize

Hainz

2007

SSRN Journal

Self Cite

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It has been argued that competing banks make inefficiently frequent use of collateralization in situations where they are better able to evaluate a project's risk than entrepreneurs. We study the bank's choice between screening and collateralization in a model where banks do not have this superior screening skill. In particular, we study the effect of bank competition on this choice. We find that competing banks use collateral less often than a monopolistic bank because competition will intensify if both banks collateralize. Moreover, bank competition is welfare improving if collateralization is rather costly. JEL-Classification: D82, G21, K00

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Bank competition and credit markets in transition economies

Cited by 61 publications

References 17 publications

Collateral and its substitutes in emerging markets’ lending

Collateral and its substitutes in emerging markets’ lending

Bank Performance in Transition Economies

The Effect of Bank Competition on the Bank's Incentive to Collateralize

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