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This comparative study analyzed the impact of loan portfolio composition on the efficiency of different types of banks in India—public sector, old private, and new private banks—in the period between 2013 and 2022. Efficiency was evaluated using data envelopment analysis (DEA). The study considered four loan variables—term lending, working capital, priority sector lending, and secured lending in proportion to the overall loans—as independent factors against the efficiency score as the dependent variable, using a random-effects generalized least squares (GLS) regression framework. The results indicate that there were no significant effects on the efficiency of old private banks, except for working capital, which had a marginally negative impact on bank efficiency. Working capital, priority sector lending, and term lending have been found to significantly impact the efficiency of new private banks. Only term and working capital loans significantly affected the efficiency of public sector banks. [ABSTRACT FROM AUTHOR]

We investigate the impact of banks' ability to minimise costs on asset quality, by assessing the temporal relationship between these variables in a sample of Italian banks over the period 2006–2015. We offer new insights into the channels through which bank efficiency affects non-performing loans by disentangling the short-term component of cost efficiency from its long-term component. We show that non-performing loans afflicting Italian banks can be explained by both efficiency components. A decrease in short-term cost efficiency precedes a worsening in banks' asset quality, implying that regulators should consider adopting short-term efficiency as an early warning indicator of a deterioration in asset quality. We also present evidence of a trade-off between long-term efficiency and bank non-performing loans, which suggests that the removal of exogenous hindrances that prevent banks from allocating optimal levels of resources to the management of their loan portfolio should be a main policymakers' objective. [ABSTRACT FROM AUTHOR]

I examine the relation between borrowers' financial reporting (FR) and the quality of banks' loan portfolios. This relation is theoretically ambiguous as better FR not only improves banks' monitoring of loans, but also grants more creditworthy borrowers cheaper access to alternative public funding, increasing competition and creating adverse selection problems for banks. Using the adoption of Sarbanes-Oxley Act Section 404 to identify improvements in borrowers' FR, I find an overall positive effect of FR on banks' lending: the quality of loans extended to borrowers subject to Section 404 improves relative to the quality of loans extended by the same bank to other borrowers exempted from Section 404. Additional tests examining borrowers' internal control over FR and loan contracts' characteristics confirm that improved monitoring and screening are both responsible for the higher loan portfolio quality. Overall, my study highlights unexplored consequences of companies' FR on the quality of banks' assets. Data Availability: Untabulated results and analyses mentioned in the article are available as an Online Appendix, see the link in Appendix E. JEL Classifications: D82; G14; G21; M41; M42. [ABSTRACT FROM AUTHOR]

Summary: Based on unique data we show that macro variables, the default rate and loss given default of bank loans share common cyclical components. The innovation in our model is the distinction between loans with either severe or mild losses. The variation in the proportion of these two types drives the cyclic behavior of the loss given default and constitutes the links with the default rate and macro variables. These links vary according to loan and borrower characteristics. During downturns, the proportion of defaults with severe losses increases, but the distribution of losses conditional on their being mild or severe does not change. although loans are monitored more closely than bonds and are more senior, the cyclical variation in their losses resembles those for bonds, albeit around a lower average level. This variation leads to an increase in the capital reserves required for loan portfolios. [ABSTRACT FROM AUTHOR]

ABSTRACT To extend and monitor loans, banks collect detailed and proprietary information about the financial prospects of their customers, many of whom are local businesses and households. Therefore, banks' loan portfolios contain potentially useful information about local economic conditions. We investigate the association between information in loan portfolios and local economic conditions. Using a sample of U.S. commercial banks from 1990:Q1 to 2013:Q4, we document that information in loan portfolios aggregated to the state level is associated with current and future changes in statewide economic conditions. Furthermore, the provision for loan and lease losses contains information incremental to leading indicators of state-level economic activity and recessions. Loan portfolio information also helps to improve predictions of economic conditions at more granular levels, such as at the commuting zone level. We discuss the relevance of these findings for economic analysis and forecasting, and the relation of our study to prior work on the informativeness of accounting information about the macroeconomy. [ABSTRACT FROM AUTHOR]

The goal of the article lies in the study of basic methodical approaches to assessment of the quality of the hank loan portfolio, identification of specific features of their practical application and justification of selection of the most appropriate for the modern economic conditions. The article considers three main groups of methods of assessment of the quality of the bank loan portfolio: expert evaluation methods and statistical and analytical methods. It goes without saying that in order to obtain an objective assessment of quality of the bank loan portfolio it is necessary to apply a complex approach, however, due to some advantages and shortcomings of the studied methods, the author marks expediency of building an integral indicator, taxonomic in particular, in order to obtain a complex, objective and efficient assessment of the bank loan portfolio. Prospects of further studies in this direction are assessment of the quality of the loan portfolio of the first group banks by the size of their assets through building integral taxonomic indicators and identification, on this basis, of factors that influence the quality of the loan portfolio with the aim of improvement of the mechanism of management of the bank lending activity. [ABSTRACT FROM AUTHOR]

During the first phase of the financial crisis in 2008/09, after Iceland and Belgium, Kazakhstan experienced the most significant bank failures as a share of bank system assets. Using rich monthly data for virtually the entire Kazakh banking industry for the period March 2007–December 2010, Stochastic Frontier Analysis (SFA) is used to fit several functions (cost, revenue, standard profit, alternative profit and input distance). Among other things, we estimate the effects of two measures of the quality and risk of the loan portfolio on the industry best practice frontiers and bank inefficiencies. We find that an increase in the volume of bad loans as a ratio of total lending has a desirable effect on the cost, input-distance and alternative profit frontiers, all of which is consistent with the ‘skimping’ hypothesis. [ABSTRACT FROM AUTHOR]

The article presents a scientific and methodical approach to the regulation of the industry concentration of credit risk of banks, based on the analysis and prediction of the dynamics of development of branches with different dominant products and technologies for their production. It is based on the idea that the loans to branches that are at the stage of growth and show a steady positive dynamics of output and profitability of operations are considered to be the least risky. Existing approaches and models of credit risk assessment are the market ones. Their use is fully justified in the case of acceptance of the hypothesis about the effectiveness of the stock market as an indicator of sustainability of enterprises. In modern conditions, when the stock market has lost its economic function of determining the value of companies to raise their funds, in terms of institutional and technological backwardness of the stock market the possibility of using these models are very limited. The objective of this article is to ground the scientific and methodical approach to credit risk management of the bank on the basis of regulating their branch concentration and developing on this basis practical recommendations to diversify its loan portfolio, taking into account branch factors. the developed procedure of the loan portfolio formation is the basis for the implementation of the proposed approach to the regulation of the branch concentration of bank credit risk. It includes analyzing of the existing loan portfolio and choosing of branches to form a new portfolio, building and analyzing time series of branch revenues and profitability, calculating of risk indicators for each branch based on the limits of sales revenues and profitability in the forecast period, loan portfolio optimization by minimizing the risk, taking into account branches loan limits with achieving the expected return. The economic and mathematic model of credit portfolio formation taking into consideration a branch factor is worked out. Recommendations on bank credit risks branch concentration regulation improving is offered. [ABSTRACT FROM AUTHOR]

Copyright of Economics: Innovative & Economic Research Journal / Casopis za Ekonomsku Teoriju i Analizu is the property of Sciendo and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Copyright of Journal of Finance Letters / Maliye Finans Yazıları Dergisi is the property of Maliye Finans Yazilari Yayimcilik Ltd. and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Any proffesional lending activity, outside the special legal authorization, is prohibited, in this category af activities being also included the acquisition of loan porfolios. Credit granted to a person keeps the legal frame and features only if a bank or nonbanking financial institution is part of the credit agreement, facing, from this perspective, a legal monopoly, the need to regulate lending itself being obvious for stability financial system. To circumvent prudential regulations, banks practice the assignment of debts, assignee being a company established as having the majority shareholder (or sole) shareholder the bank-assignor. This situation, in the absence of the express authorization of the National Bank of Romania, makes the assignment contract violate the conditions of specialized use ability. In these conditions, the operation itself, done by fraud law, is void. The aims of the presented study bring to the conclusion that only the companies which are authorized by the National Bank to run credit operation have the judicial capacity to take over, by assignment, banking credits, any other solution being equivalent to recognize the right of each entity (why not of any individual) to develop credit operations specific to banks, in any conditions, by establishing any kind of accessories. [ABSTRACT FROM AUTHOR]

Recent literature (Boyd and De Nicoló, J Finance 60:1329–1343, ) has argued that competition in the loan market lowers bank risk by reducing the risk-taking incentives of borrowers. Using a model where competition arises from falling switching costs for entrepreneurs, we show that the impact of loan market competition on banks is reversed if banks can adjust their loan portfolios. The reason is that when borrowers become safer, banks want to offset the effect on their balance sheet and switch to higher-risk lending. They even overcompensate the effect of safer borrowers because loan market competition erodes their franchise values and thus increases their risk-taking incentives. [ABSTRACT FROM AUTHOR]

A key competency in commercial lending is the ability to generate information about customers in order to separate the credit-worthy from those who are not. Traditionally, this was performed through proximal, face-to-face interaction. Nevertheless, in order to rationalise the process and in an attempt to overcome information asymmetries, credit-scoring systems are increasingly being used. A common assumption has been that these systems are replacing proximal customer evaluations with distal ones. Some researchers have suggested, however, that proximal interaction and contextual, non-standardiseable elements will be of continued importance for assessing customers. In the light of this, the role of credit-scoring systems as a way of overcoming proximal interaction may be questioned. The aim of this paper is to explore the customer knowledge creation process in commercial lending. Departing from an approach inspired by phenomenology, this paper argues that customer knowledge is created through an interplay of proximal, embodied participation and reification. Reified knowledge generated from credit-scoring and documentation is instilled with meaning through participative knowledge created in proximal face-to-face meetings, which include discursive practices (dialogue, negotiation, joint meaning-making) as well as non-discursive practices (atmosphere, artefacts, perceptual cues).Journal of Financial Services Marketing (2008) 12, 287–298. doi:10.1057/palgrave.fsm.4760082 [ABSTRACT FROM AUTHOR]

The study shows that multi-bank loan pool contracts improve the risk-return profile of banks' loan business. Banks write simple contracts on the proceeds from pooled loan portfolios, taking into account the free-rider problems in joint loan production. Thereby especially smaller banks benefit greatly from diversifying credit risk while limiting the efficiency loss due to adverse incentives. Calibration results are presented for a sample of German savings banks: the formation of loan pools reduces the volatility in default rates, proxying for credit risk, of loan portfolios by roughly 80%. Under reasonable assumptions, the gain in return on equity (in certainty equivalent terms) is around 200 basis points annually. [ABSTRACT FROM AUTHOR]

Credit card loans are a growing component of earnings and market value for banks. The valuation of credit card loans, however, has received surprisingly little attention. This article develops and estimates an arbitrage-free model for valuing portfolios of credit card loans. The model uses Federal Reserve quarterly call report data for the credit card portfolio balances, rates earned, and losses and recoveries. Interest rates are fitted using a one-factor model with deterministic volatilities. The valuation estimates show that $1.00 in a credit card loan is worth about $1.25 to the issuing bank. These estimates are consistent with the percentage premiums obtained in recorded sales of credit card portfolios. [ABSTRACT FROM AUTHOR]