Collateral-based lending in emerging markets: Evidence from Thailand

Menkhoff, Lukas; Neuberger, Doris; Suwanaporn, Chodechai

doi:10.1016/j.jbankfin.2004.12.004

Cited by 119 publications

(130 citation statements)

References 41 publications

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“…Collateral requirements on a loan contract are particularly significant for SMEs compared to large firms because they lack physical assets to pledge as collateral to the banks, which may cause SMEs to be credit rationed (Menkhoff et al 2006). Additionally, SMEs are owned and managed by individuals and, hence, personal characteristics and private wealth of the borrower can have a greater impact on the business performance of SMEs than large firms (Bolton Committee 1971;Tirole 2010).…”

Section: Collateral-based Lending and The Determinants Of Collateralmentioning

confidence: 99%

“…A study by Grunert and Norden (2012) shows that large firms pledge less collateral because they have more bargaining power and can borrow from different sources with better credit terms. Menkhoff et al (2006) show that younger firms need to provide more collateral for bank loans, as they are considered unstable. Similarly, Chakraborty and Hu (2006) find that older firms are more transparent than smaller ones, resulting in older firms pledging lower collateral.…”

Section: Firm Characteristicsmentioning

confidence: 99%

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Collateral Requirements for Sme Loans: Empirical Evidence From the Visegrad Countries

Rahman

Belás

Klieštik

et al. 2017

Journal of Business Economics and Management

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Abstract. The purpose of this paper is to examine the determinants of collateral for small and medium enterprises (SMEs) in the context of Visegrad countries: Czech Republic, Slovak Republic, Hungary and Poland. The data set for this paper was obtained from the Business Environment and Enterprise Performance Survey (BEEPS), which was conducted by the World Bank and the European Bank for Reconstruction and Development (EBRD) from 2012-2014. A binary logistic regression model with different specifications was employed to examine the effect of independent variables on the incidence of collateral. The results show that risky borrowers need to pledge collateral and the reduction of asymmetric information can lower the incidence of collateral for SMEs. Moreover, we find that female borrowers are more likely to pledge collateral than male borrowers are. The results also suggest that loans with a longer maturity are more likely to be collateralized than short-term loans. We find evidence that bank-borrower proximity can alleviate the incidence of collateral whereas bank concentration may increase collateral requirements. Policy makers may consider these results to implement policies that can promote bank competition and can lower collateral requirements for female borrowers. The paper contributes to the ongoing debate on the determinants of collateral.

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Section: Collateral-based Lending and The Determinants Of Collateralmentioning

confidence: 99%

Section: Firm Characteristicsmentioning

confidence: 99%

Collateral Requirements for Sme Loans: Empirical Evidence From the Visegrad Countries

Rahman

Belás

Klieštik

et al. 2017

Journal of Business Economics and Management

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“…Interestingly, small firms in transition countries are less likely to pledge collateral than medium-sized firms. The important role for collateral is supported by La Porta et al (2003) for Mexico, Menkhoff et al (2006) for Thai commercial banks and Allen et al (2005) for private sector loans in China. As a side-aspect Thai banks' customers are likely to be locked-in as housebanks demand extra collateral.…”

Section: Empirical 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%

Collateral and its substitutes in emerging markets’ lending

Menkhoff

Neuberger

Rungruxsirivorn

2012

Journal of Banking & Finance

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112

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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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“…loom larger in SME lending and, as Berger and Udell (1995) pointed out, collateral is very important in lending to SMEs. Similarly, Menkhoff et al (2006) find for a sample of Thai banks that collaterization is more important for loan contracts with SMEs. As argued before (H1), the willingness to use collateral depends on the legal system.…”

Section: Motivation and Hypothesesmentioning

confidence: 81%

Institutions and Bank Behavior

Wachtel

Haselmann

2006

SSRN Journal

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This paper explores how the legal environment affects bank behavior in 20 transition economies. Based on a newly constructed data set we find that banks' loan portfolio composition depends on the legal environment. If banks operate in a well-functioning legal environment they lend relatively more to SMEs and provide more mortgages.On the other hand, banks lend more to large enterprises and to the government if the legal system is unsound. As a transmission channel we identify the banks' willingness to accept collateral which depends on the bankers' perceptions of the prevailing laws regarding collateral.JEL Codes: F34, F37, G21, G28, G33, K39.

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Collateral-based lending in emerging markets: Evidence from Thailand

Cited by 119 publications

References 41 publications

Collateral Requirements for Sme Loans: Empirical Evidence From the Visegrad Countries

Collateral Requirements for Sme Loans: Empirical Evidence From the Visegrad Countries

Collateral and its substitutes in emerging markets’ lending

Institutions and Bank Behavior

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