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1 – 10 of over 17000Kellen Murungi, Abdul Latif Alhassan and Bomikazi Zeka
The agricultural sector remains the backbone of several emerging economies, including Kenya, where it contributes 34% to its gross domestic product (GDP). However, access to…
Abstract
Purpose
The agricultural sector remains the backbone of several emerging economies, including Kenya, where it contributes 34% to its gross domestic product (GDP). However, access to financing for agricultural activities appears to be very low compared to developed economies. Following this, governments in a number of countries have sought to introduce banking sector regulations to facilitate increased funding to the agricultural sector. Taking motivation of the interest rate capping regulations by the Central Bank of Kenya (CBK) in 2016, this paper examined the effect of these interest rate ceiling regulations on agri-lending in Kenya.
Design/methodology/approach
The paper employs random effects technique to estimate a panel data of 26 commercial banks in Kenya from 2014 to 2018 using the ratio of loans to agricultural sector to gross loans and the natural logarithm of loans to agricultural sector as proxies for agri-lending. Bank size, equity, asset quality, liquidity, revenue concentration and bank concentration are employed as control variables.
Findings
The results of the panel regression estimations show that the introduction of the interest cap resulted in increases in the proportion and growth in agri-lending compared with the pre-interest cap period. In addition, large banks and highly capitalised banks were found to be associated with lower agri-lending, with differences in the effects across pre-cap and post-cap periods.
Practical implications
From a policy perspective, the findings highlight the effectiveness of interest rate capping in meeting this objective and supports the calls for strengthening cooperation between the government and key stakeholders in the financial sector. This will allow for the effective enforcement of policies by the regulatory powers in a manner that guarantees sound and dynamic financial systems, particularly within the agricultural sector.
Originality/value
As far as the authors are aware, this the first paper to examine the effect of the interest rate cap regulation on agri-lending in Kenya.
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This paper investigates the joint impact of COVID-19, alliances and digital strategies on bank lending. Additionally, this study examines whether the effect of COVID-19, alliances…
Abstract
Purpose
This paper investigates the joint impact of COVID-19, alliances and digital strategies on bank lending. Additionally, this study examines whether the effect of COVID-19, alliances and digital strategies on bank loans depends on the types of banks.
Design/methodology/approach
Using a sample of 92 commercial banks in Indonesia from March 2020 to September 2021, a fixed-effects model (FEM) was used to analyze data.
Findings
This study provides robust results regarding the negative impact of the COVID-19 pandemic on bank loans in Indonesian banking. Furthermore, it reveals that collaboration between banks and FinTech does not substantially influence bank lending, despite the rise in proven cases tending to reduce credit expansion. It emphasizes the importance of the development of mobile banking as part of digitalization in boosting loan bank expansion, and this finding is more noticeable in private and small banks.
Practical implications
This study highlights some policy recommendations to improve bank lending during the COVID-19 period, particularly the role of new alliances and digital strategy in involving COVID-19 pandemic mitigation within a novel financial ecosystem.
Originality/value
This study offers a significant contribution to the empirical literature that specifically explores the joint impact of the COVID-19 pandemic, alliances and digital strategies on bank lending in banking.
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Huajing Hu, Yili Lian and Chih-Huei Su
The purpose of this paper is to examine whether prior bank lending relationships affect firms’ liquidity management.
Abstract
Purpose
The purpose of this paper is to examine whether prior bank lending relationships affect firms’ liquidity management.
Design/methodology/approach
The authors mainly work on evaluating first, whether prior lending relationships affect corporate cash holdings? and second, whether the cash flow sensitivity of cash varies systemically with lending relationships. Three different ways are used to define lending relationships, including the lending relationship dummy, a firm’s maximum relationship intensity in terms of number of deals across all lenders and a firm’s maximum relationship intensity in terms of dollar amounts across all lenders. In addition, the paper applies two-stage least squares (2SLS) to address the concern of endogeneity between firms’ liquidity management and banking relationships.
Findings
The authors find that firms with lending relationships maintain a lower level of cash holdings and save less cash out of cash flow. Furthermore, the effect of lending relationships is more profound for firms with high cash flow. The results suggest that prior lending relations alleviate information asymmetry, lower the cost of capital and therefore affect firms’ propensity to retain cash and maintain a high level of cash holdings.
Research limitations/implications
This paper contributes to both the liquidity management literature and the literature on the value of maintaining lending relationships with banks. Researchers should take into consideration the lending relationships built over the course of the lending when assessing firms’ cash policies.
Social implications
Bank lending relationship mitigates the information asymmetry problem, one type of market friction, and facilitates firms’ future external financing, thereby affecting firms’ cash policies and giving more flexibility in liquidity management. The value of lending relationships distinguishes bank loans from public bonds. Therefore, firms, especially those facing more information asymmetry issue, should take into account the benefits from lending relationships in their future debt financing.
Originality/value
Extant literature examines how firm characteristics affect firms’ cash holdings. This paper introduces a new factor that could explain corporate cash policy.
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Peter Öhman and Darush Yazdanfar
The purpose of this study is to investigate the Granger causal link between bank lending and housing prices.
Abstract
Purpose
The purpose of this study is to investigate the Granger causal link between bank lending and housing prices.
Design/methodology/approach
Several econometric methods, including Granger causality tests based on a vector error correction model, were applied to analyse monthly time series data in the Swedish context. The data cover bank lending, apartment prices, villa prices, mortgage rates and the consumer price index from September 2005 to October 2013.
Findings
The results indicate that bank lending and housing prices are cointegrated. According to Granger causality tests, bidirectional relationships exist between bank lending and each of apartment and villa prices, confirming the financial accelerator mechanism. However, earlier shocks arising from housing prices themselves account for the greatest variation in future prices.
Originality/value
To the authors’ knowledge, this study represents the first analysis of the causal link between bank lending and the housing market in terms of apartment and villa prices in the Swedish context.
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Niklas Arvidsson, Sara Jonsson and Lotta Karin Snickare
The purpose of this paper is to apply a capability perspective to investigate the shift from relationship lending to transaction lending in a bank’s corporate segment. The authors…
Abstract
Purpose
The purpose of this paper is to apply a capability perspective to investigate the shift from relationship lending to transaction lending in a bank’s corporate segment. The authors investigate the impact of three operational capabilities: assisting corporate clients in funding and business operations, management of customer relationships and internal cooperation on performance in relationship and transaction lending.
Design/methodology/approach
The primarily empirical material comprises longitudinal survey data, collected on three occasions during the period 1998 throughout 2001 from one of Sweden’s largest banks. Data are analyzed using factor analysis and OLS regression.
Findings
Results show that the effects of the three capabilities are contingent on the type of lending strategy: In relationship lending, assisting corporate clients has no significant direct effect on performance; however, it has an indirect effect on performance via the management of customer relationships. In transaction lending, assisting corporate clients has a direct effect on performance, and this effect becomes stronger as the transaction strategy is further implemented. The results also show that the direct effect of the management of customer relationships and cooperation on performance is significant in both strategies; however, the relation is stronger in relationship lending compared with transaction lending.
Originality/value
The findings indicate that the choice of lending strategy is more complex than a choice between a strict relationship strategy and a strict transaction strategy and that a strategy that leads to competitive advantage includes elements of both strategies.
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Van Dan Dang and Hoang Chung Nguyen
This paper aims to investigate the link between uncertainty in banking and bank lending behavior, particularly shedding light on the modifying role of bank competition in the…
Abstract
Purpose
This paper aims to investigate the link between uncertainty in banking and bank lending behavior, particularly shedding light on the modifying role of bank competition in the nexus.
Design/methodology/approach
The study uses a panel of Vietnamese banks over the 2007–2019 period for empirical analysis and the dispersion of shocks to bank-level variables to measure banking uncertainty. To strongly confirm our findings, the authors perform a battery of alternative checks based on different econometric techniques, including fixed effect regressions with Driscoll–Kraay standard errors, the two-step system generalized method of moments estimator and the least squares dummy variable-corrected estimator.
Findings
Uncertainty induces multifaceted unfavorable impacts on bank lending. Concretely, banks tend to restraint loan growth, suffer more credit risk, and charge higher lending rates during periods of higher uncertainty. Further investigation reveals that lending activities of banks with greater market power are less sensitive to adverse uncertainty shocks; in other words, increased competition in the banking system is associated with more substantial consequences of uncertainty on bank lending.
Originality/value
To the best of the authors’ knowledge, this study is the first attempt to simultaneously explore the impacts of uncertainty on quantity, quality and prices of bank lending. This paper also aim at putting forth the level of uncertainty particularly related to the banking sector. Importantly, examining the conditionality of the linkage between uncertainty and bank lending with respect to bank competition is entirely novel.
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John K. Ashton and Kevin Keasey
This paper examines the Competition Commission report on the provision of small and medium‐sized enterprise (SME) banking services in the UK. The examination will centre on the…
Abstract
This paper examines the Competition Commission report on the provision of small and medium‐sized enterprise (SME) banking services in the UK. The examination will centre on the perceived clash between the ‘remedies’ proposed by the Competition Commission and the present forms of lending decision making, a key function in business banking. It is concluded that the Competition Commission assessment of the provision of banking services by clearing banks to small firms, directs scant attention as to how banking services are ‘manufactured’ or banks actually make decisions and operate in practice.
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Retselisitsoe I. Thamae and Nicholas M. Odhiambo
This paper aims to investigate the nonlinear effects of bank regulation stringency on bank lending in 23 sub-Saharan African (SSA) countries over the period 1997–2017.
Abstract
Purpose
This paper aims to investigate the nonlinear effects of bank regulation stringency on bank lending in 23 sub-Saharan African (SSA) countries over the period 1997–2017.
Design/methodology/approach
This study employs the dynamic panel threshold regression (PTR) model, which addresses endogeneity and heterogeneity problems within a nonlinear framework. It also uses indices of entry barriers, mixing of banking and commerce restrictions, activity restrictions and capital regulatory requirements from the updated databases of the World Bank's Bank Regulation and Supervision Surveys as measures of bank regulation.
Findings
The linearity test results support the existence of nonlinear effects in the relationship between bank lending and entry barriers or capital regulations in the selected SSA economies. The dynamic PTR estimation results reveal that bank lending responds positively when the stringency of entry barriers is below the threshold of 62.8%. However, once the stringency of entry barriers exceeds that threshold level, bank credit reacts negatively and significantly. By contrast, changes in capital regulation stringency do not affect bank lending, either below or above the obtained threshold value of 76.5%.
Practical implications
These results can help policymakers design bank regulatory measures that will promote the resilience and safety of the banking system but at the same time not bring unintended effects to bank lending.
Originality/value
To the best of the authors’ knowledge, this is the first study to examine the nonlinear effects of bank regulatory measures on bank lending using the dynamic PTR model and SSA context.
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Victor Ekpu and Alberto Paloni
The purpose of this paper is to investigate the importance of business lending as a source of bank profits in the UK banking system. The paper also examines whether the…
Abstract
Purpose
The purpose of this paper is to investigate the importance of business lending as a source of bank profits in the UK banking system. The paper also examines whether the profitability of business lending is mostly driven by heterogeneous characteristics of individual banks or whether it is affected by systematic characteristics such as bank size and ownership structure.
Design/methodology/approach
The study uses bank level data from BankScope for a total sample of 83 UK banks and building societies. The period under consideration extends from 2005 to 2009. Econometric estimation is by panel fixed effects.
Findings
Our empirical results show that business lending is a statistically significant determinant of bank profits. However, this average effect masks important systematic differences among banks. In particular, we find strong size effects: the profitability of business lending is considerable for small banks but negligible for large banks. In contrast, we could not detect any ownership effects for domestic and foreign banks. These findings persist when the occurrence of the financial crisis is accounted for.
Research limitations/implications
Interestingly, our study relates these findings to the process of financialisation. Yet, the extent of the latter and its impact on various groups of banks (i.e. large, small, domestic and foreign banks) have not been examined. Further research in this area would make an important contribution to the literature.
Practical implications
Our findings suggest that business lending is not a driving factor of profitability for large banks. One possible policy implication – which may be of interest especially to regulators and policy makers – is that capital injections into the larger banks per se are unlikely to lead to an expansion of credit to business.
Originality/value
There is very little research in the literature on the questions addressed in this paper, especially for the UK banking system. Moreover, the process of financialisation, which motivates the enquiry of this paper, is a growing area of research. Thus, the contribution of this paper is twofold.
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Babu G. Baradwaj, Michaël Dewally, Liu Hong and Yingying Shao
The purpose of this study is to investigate the impact of religiosity on banks’ lending behavior during the COVID-19 pandemic in the USA.
Abstract
Purpose
The purpose of this study is to investigate the impact of religiosity on banks’ lending behavior during the COVID-19 pandemic in the USA.
Design/methodology/approach
This study uses the evidence from the issuance of Paycheck Protection Program (PPP) loans to relate local religiosity to banks’ participation in the PPP loan program and to banks’ loan portfolio performance during the pandemic.
Findings
The results of this study show that banks located in more religious counties have a higher level of lending through the PPP, supporting the ethical and moral concerns cultivated by local religious beliefs. In addition, banks’ lending before the pandemic is more prudential in more religious areas, as reflected in lower losses and higher returns at the onset of the crisis, especially in areas where business activities were most disrupted, supporting the stewardship role encouraged by religiosity.
Originality/value
Thanks to the structure of the PPP loans programs, the authors are able to disentangle the conflicting effects of morality and prudence on banks’ behavior.