On the rationale of bank lending in pre-crisis Thailand

Abstract

Evidence from credit files is provided to examine bank lending determinants of Thai commercial banks. Their lending practice follows reasonable patterns as a standard set of variables, including indirect risk variables, explains much of the variance in interest rate spread. Reflecting institutional differences with mature markets, we find higher im-portance of relationship banking and risk control via credit availability. Information about later default reveals prudent relationship lending. However, banks could have made bet-ter use of available information about borrowers' riskiness. These findings do not sup-port a general verdict of bad banking but indicate room to improve lending decisions

Collateral-based lending in emerging markets: Evidence from Thailand

“…21 Our result may be explained by a higher bargaining power of large banks and a greater number of services provided by these banks to their corporate customers. It fits into this line of reasoning that larger banks impose significantly higher interest rates (see Menkhoff and Suwanaporn, 2003). Differences of collateral values can also be observed for different industries, although they are not significant.…”

“…We received a total of 560 suitable files most of which are complete as to the required variables. This data set was then analyzed in detail, first regarding their inherent structure and, second, regarding a crosscheck with data on the Thai economy: Both ways of examination yielded favorable results, indicating that the sample is suitable for the purpose of our study (see Menkhoff and Suwanaporn, 2003). Nevertheless, the data has three minor distortions: First, the share of non-performing loans is 45.9% in the sample compared to more than 50% for the whole of Thailand.…”

“…An earlier study revealed that relationship lending plays a comparatively larger role in explaining the behavior of Thai banks, with housebanks improving above all credit availability (Menkhoff and Suwanaporn, 2003). The above mentioned study on Mexico (La Porta et al, 2003) uses other measures of relationship strength, defining ''related lending'' as bank lending to related parties.…”

A Century of Firm – Bank Relationships: Did Banking Sector Deregulation Spur Firms to Add Banks and Borrow More?

“…For example, US studies using the NSSBF (National Survey of Small Business Finance) data estimate the mean number of banks per firm to be two and the median to be one, while the mean for the large US firms in Houston and James (1996) equals five. The firm size -number of relationships correspondence has been further documented for France by Dietsch (2003), for Italy by Guiso (2003), for Germany by Hommel and Schneider (2003), and for Thailand by Menkhoff and Suwanaporn (2007) for example.…”

Financial Liberalisation in Emerging Markets: How Does Bank Lending Change?

“…This dataset has been analysed in several respects and shows an inherently reasonable structure. Cross-checks with data for the Thai economy prove that it is a useful sample (see details in Menkhoff and Suwanaporn, 2007). Reassuringly, the three remaining distortions are acceptable: first, the loan cases are a bit too favourable for the industry as the NPL ratio is 45.9 per cent in the sample, whereas it reached more than 50 per cent for the total.…”