Learning from a rival bank and lending boom

Ogura, Yoshiaki

doi:10.1016/j.jfi.2005.10.002

Cited by 52 publications

(35 citation statements)

References 23 publications

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“…Note that a risk-based loan pricing policy, combined with the positive relation between past loan growth and loan losses detected in Section 2.1, would require banks to charge higher rates for these additional loans compared to the existing credit portfolio. 12 However, the competition for borrowers may induce banks to underprice the loan rates of competing banks in order to attract new customers (see Ogura 2006).…”

Section: Loan Growth and Interest Incomementioning

confidence: 99%

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Loan growth and riskiness of banks

Foos

Nordén

Weber

2010

Journal of Banking & Finance

467

314

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We investigate whether loan growth affects the riskiness of banks in 14 major western countries under "regular conditions". Using Bankscope data from more than 10,000 individual banks during 1997-2005, we test three hypotheses on the relation between past loan growth and loan losses, bank profitability, and bank solvency. Our empirical evidence supports the view that loan growth leads to a peak in loan loss provisions three years later, to a decrease in relative interest income, and to lower capital ratios. Further analyses reveal that loan growth also has a negative impact on risk-adjusted interest income. These results suggest that loan growth represents an important driver of bank risk. JEL classification: G20, G21Keywords: bank lending, loan losses, bank profitability, bank solvency * Daniel Foos is Doctoral Student and Research Assistant at the Department of Banking and Finance, University of Mannheim, Email: foos@bank.BWL.uni-mannheim.de. Lars Norden is Assistant Professor at the Department of Banking and Finance, University of Mannheim, and currently visiting the Finance Department, Kelley School of Business, Indiana University, Email: lnorden@indiana.edu. Martin Weber is Professor of Business Adminstration, Banking and Finance at the Department of Banking and Finance, University of Mannheim, and at the Centre for Economic Policy Research (CEPR), Email: weber@bank.BWL.uni-mannheim.de. We wish to thank José Luis Peydró-Alcalde, Wolf Wagner, as well as participants at the 14 th Annual Meeting of the German Finance Association Meetings in Dresden, the 2 nd Conference on Banking Regulation, Integration and Financial Stability at the Centre for European Economic Research (ZEW) in Mannheim, the research seminar at the University of Mannheim for useful comments and suggestions. In addition, we are grateful to Julia Hein and Jeanette Roth for their support on data issues. Martin Betzwieser provided excellent research assistance. 2The activity of lending to customers represents a core function of banks, and is an integral part of the academic literature that explains why banks exist (see Diamond 1984, Bhattacharya andThakor 1993). Some financial systems have been classified as "bank-based" because most of the funds needed for investment are channeled from households to firms through financial intermediaries (e. In addition to macro-economic factors (economic growth, monetary policy, etc.) that matter for all banks there are many bank-specific reasons for an increase or decrease in lending. Either new profitable lending opportunities may arise, like new loan products, lending channels, or lending segments (commercial vs. retail lending, internet-based lending, student loans, etc.), or the expansion to new geographical markets (other regions or countries) occurs. Mechanisms to increase lending are lowering interest rates, loosening credit standards, or both combined. Moreover, a bank may rely on organic internal growth or external growth by means of mergers and acquisitions (M&A). In any of these cases, it...

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Section: Loan Growth and Interest Incomementioning

confidence: 99%

“…First, there are theoretical papers explaining changes in the credit policy of banks with reputation, interbank competition, and informational asymmetries (e.g., Rajan 1994, Ogura 2006, Dell'Ariccia and Marquez 2006.…”

mentioning

confidence: 99%

Loan growth and riskiness of banks

Foos

Nordén

Weber

2010

Journal of Banking & Finance

467

314

View full text Add to dashboard Cite

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“…For this purpose, we estimate the following models based on DeYoung (1997) andCarbo andRodriguez (2007). The variables we consider are the determinants of credit risk and lending-deposit spread highlighted in the literature (McShane and Sharpe, 1985;Clair, 1992;Angbazo, 1997;Kwan and Eisenbeis, 1997;Maudos and De Guevara, 2004;Dell'Ariccia and Marquez, 2006;Ogura, 2006;Lepetit et al, 2008b;Foos, et al, 2010):…”

Section: Econometric Specification and Methodologymentioning

confidence: 99%

Non-Interest Income Activities and Bank Lending

2014

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Abstract. This paper investigates the impact of non-interest income businesses on bank lending. Using quarterly data on 8,287 U.S. commercial banks over 2003-2010, we find that the non-interest income activities of banks with total assets above $100 million ('non-micro' banks) influence credit risk. In particular, banks that have higher income from fiduciary activities have lower credit risk. The impact is more pronounced during the post-crisis period. Our findings suggest that fiduciary activities induce managers to behave more prudently in lending because such activities are found to increase banks' franchise value. Other non-interest income activities that may be thought to have an influence on lending -such as service charges on deposit accounts -do not appear to have any robust relationship with the quality of credit extended. Moreover, we find little evidence of income or price crosssubsidization between traditional intermediation and non-interest income activities, except for fiduciary activities after the crisis. Furthermore, we find that micro banks suffer from diseconomies in joint production of non-interest income activities and lending. JEL Classifications: G21

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“…According to Ogura (2006), bank competition for borrowers may boost loans because competing banks tend to underprice their lending rate and thus, credit risks are underestimated. Therefore, the relation between loan loss provisions and loan growth of banks can be dependent on bank market structure.…”

Section: Literature Review and Research Focusmentioning

confidence: 99%

Loan Loss Provisions and Lending Behaviour of Banks: Asian Evidence During 1992-2009

Soedarmono,

Tarazi,

Agusman

et al. 2012

SSRN Journal

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Effects of loan loss provisioning on lending behaviour of banks remain a major concern in policy circles in order to strenghten both bank stability and financial intermediation. A sample of 686 commercial banks in Asian countries over the 1992-2009 period is used to identify factors contributing to the occurence of a procyclical effect of loan loss provisions on loan growth. Our empirical results highlight that non-discretionary provisions have a procyclical effect, as higher non-discretionary provisions reduce loan growth of banks. This procyclical effect holds for large banks but not small banks. A closer investigation shows that bank market structure, economic development and institutional quality also affect the link between non-discretionary provisions and loan growth of banks. More specifically, higher bank competition, higher per capita income and higher rule of law mitigate the procyclical effect of non-discretionary provisions on loan growth regardless of whether banks are large or small. These findings have policy implications concerning the adoption of the dynamic provisioning system for Asian banks.

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Learning from a rival bank and lending boom

Cited by 52 publications

References 23 publications

Loan growth and riskiness of banks

Loan growth and riskiness of banks

Non-Interest Income Activities and Bank Lending

Loan Loss Provisions and Lending Behaviour of Banks: Asian Evidence During 1992-2009

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