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Book part
Publication date: 29 December 2016

Zoltán Schepp and Mónika Mátrai-Pitz

Over the last decade, foreign currency indebtedness in Hungary has become a systemic financial problem, and its crippling impact on the real economy has been aggravated by its…

Abstract

Over the last decade, foreign currency indebtedness in Hungary has become a systemic financial problem, and its crippling impact on the real economy has been aggravated by its significant constraints on economic policy. In international comparative terms, however, there are certain specific features relating to Hungary which make this issue particularly problematic, and during the financial crisis both exchange rates and interest rates were important factors in increasing the burden on individual households. We present here a case study whereby our research focuses on the causes and determining factors of the pricing of Swiss franc-denominated mortgage loans. Our empirical exercise examines four potential price shocks which might have affected the pricing decisions of credit institutions: foreign currency interest rates, the country risk premiums (measured by Credit Default Swap (CDS) spread), the deteriorating quality of the loan portfolio and the taxes levied on banks. The questions which arise concern the relationship of these costs to the changes in interest rates and the extent to which these cost shocks were passed on by banks to their clients. Empirical evidence based on Vector Error Correction Model (VECM) shows a significant long-run relationship between cost factors and CHF denominated mortgage loans interest rates — with a reasonable sign and magnitude of parameters, but also with moderate forecasting power. Finding a tractable solution to the foreign currency debt trap is only possible if a fair distribution of burdens is achieved, and this should be supported by empirical facts. At the end of the day, all three affected parties (debtors, banks, and the Hungarian State) had made their contribution, but how fair and reasonable the distribution was remains an open issue for further research.

Article
Publication date: 19 June 2019

Huifeng Pan and Hong-Youl Ha

Changes in consumers’ awareness of interest rates (deposits and loans) are important for making financial decisions, particularly in the banking industry. However, little is known…

Abstract

Purpose

Changes in consumers’ awareness of interest rates (deposits and loans) are important for making financial decisions, particularly in the banking industry. However, little is known about the effect of consumer awareness on customer orientation and loyalty. The purpose of this paper is to examine how changes in consumers’ awareness of interest rates in Korea can influence customer loyalty, considering banks’ efforts to improve customer orientation. The authors explicitly rationalize the fact that consumers’ awareness of interest rates can play an important role in moderating the strength of the relationship between customer orientation and loyalty.

Design/methodology/approach

The data were collected from participants (n=327) who had made banking transactions based on their real income in Seoul. Participants mainly focused on personal loans and debts, and most people had banked with a specific bank (one of the main Korean banks) for longer than three years. The authors tested the effect of interest rates using two methodologies, namely, a field study using SEM and an experimental design.

Findings

The study tested these relationships with survey data and two simulated experiments. The findings indicated that the influence of customer orientation on customer loyalty decreased with the increase in loan interest rate awareness. Moreover, the customer orientation-loyalty link weakened with the increase in awareness of central bank base rates. Conversely, the awareness that loan rates were decreasing strengthened the relationship.

Research limitations/implications

Banks need to know the importance of periodic consultation services with valuable consumers who transact with one or more banks because changes in the consumer awareness of interest rates influence customer loyalty (or switching behavior), particularly when their awareness of loan interest rates increases.

Originality/value

This paper is, to the best of the authors’ knowledge, the first to investigate the consequence of such a change in consumers’ awareness of both deposit and loan interest rates with regard to the relationship between customer orientation and loyalty.

Details

Asia Pacific Journal of Marketing and Logistics, vol. 32 no. 1
Type: Research Article
ISSN: 1355-5855

Keywords

Article
Publication date: 10 December 2019

Luis Felipe Zegarra

The purpose of this paper is to analyze the effect of political instability on rural credit in Lima between 1835 and 1865. In particular, it explores the effects of wars on…

Abstract

Purpose

The purpose of this paper is to analyze the effect of political instability on rural credit in Lima between 1835 and 1865. In particular, it explores the effects of wars on interest rates for the agricultural sector.

Design/methodology/approach

The paper relies on primary sources for the study of the early credit market of Lima. In particular, the study relies on a sample of more than 800 notarized loans for 1835–1865, collected from the National Archives of Peru, to determine the effect of wars on the cost of credit.

Findings

The evidence shows that wars increased interest rates on rural loans and that the impact of wars on the cost of credit was greater when the State lacked fiscal resources. Political instability made funding more costly for landlords and farmers, especially in the late 1830s and early 1840s.

Originality/value

This paper is one of the few historical studies on the role of wars on rural credit in Latin America. It contributes to our understanding of the linkages between political instability and financial development.

Details

Agricultural Finance Review, vol. 80 no. 2
Type: Research Article
ISSN: 0002-1466

Keywords

Book part
Publication date: 1 January 2009

Richard Rosenberg, Adrian Gonzalez and Sushma Narain

Over the past two decades, institutions that make microloans to low-income borrowers in developing and transition economies have focused increasingly on making their lending…

Abstract

Over the past two decades, institutions that make microloans to low-income borrowers in developing and transition economies have focused increasingly on making their lending operations financially sustainable by charging interest rates that are high enough to cover all their costs. They argue that doing so will best ensure the permanence and expansion of the services they provide. Sustainable (i.e., profitable) microfinance providers can continue to serve their clients without needing ongoing infusions of subsidies and can fund exponential growth of services for new clients by tapping commercial sources, including deposits from the public.

Details

Moving Beyond Storytelling: Emerging Research in Microfinance
Type: Book
ISBN: 978-1-84950-682-3

Book part
Publication date: 1 October 2014

Jugnu Ansari and Ashima Goyal

If banks solve an inter-temporal problem under adverse selection and moral hazard, then bank specific factors, regulatory and supervisory features, market structure, and…

Abstract

If banks solve an inter-temporal problem under adverse selection and moral hazard, then bank specific factors, regulatory and supervisory features, market structure, and macroeconomic factors can be expected to affect banks’ loan interest rates and their spread over deposit interest rates. To examine interest rate pass-through for Indian banks in a period following extensive financial reform, after controlling for all these factors, we estimate the determinants of commercial banks’ loan pricing decisions, using the dynamic panel data methodology with annual data for a sample of 33 banks over the period 1996–2012. Results show commercial banks consider several factors apart from the policy rate. This limits policy pass-through. More competition reduces policy pass-through by decreasing the loan rate as well as spreads. If managerial efficiency is high then an increase in competition increases the policy pass-through and the vice-versa. Reform has had mixed effects, while managerial inefficiency raised rates and spreads, product diversification reduced both. Costs of deposits are passed on to loan rates. Regulatory requirements raise loan rates and spreads.

Details

Risk Management Post Financial Crisis: A Period of Monetary Easing
Type: Book
ISBN: 978-1-78441-027-8

Keywords

Article
Publication date: 5 July 2011

Halil D. Kaya

The purpose of this study is to examine the impact of interest rates on the size and the maturity choice of a syndicated bank loan. In addition, it attempts to determine the…

3330

Abstract

Purpose

The purpose of this study is to examine the impact of interest rates on the size and the maturity choice of a syndicated bank loan. In addition, it attempts to determine the long‐run impact of a syndicated loan on the borrower's capital structure.

Design/methodology/approach

The paper uses a sample of 6,903 syndicated bank loans in the USA, covering the period 1984‐2004. First, all syndicated loans are categorized into two groups: loans in periods of increasing interest rates, and loans in periods of decreasing rates. Then, non‐parametric tests are performed to compare the characteristics of the two groups, including the proceeds from the loans, and robust regressions are used to examine the impact of the interest rates on the maturity choice. Finally, robust regressions are employed to examine the long‐run impact of the interest rates on the borrowers' leverage ratios.

Findings

On the whole, the results reject the market timing theory of capital structure for syndicated bank loans. Firms in the two groups borrow in similar amounts, and in the long run, the difference between the two groups' leverage ratios is statistically insignificant. On the other hand, firms tend to choose longer maturities when the interest rates are low compared to the rates two or three years ago.

Originality/value

To the best of the author's knowledge, this is the first study that links debt market conditions to the leverage ratios of firms that borrow in the syndicated bank loan market. In other words, this is the first study that tests the market timing theory of capital structure for syndicated bank loans.

Details

Managerial Finance, vol. 37 no. 8
Type: Research Article
ISSN: 0307-4358

Keywords

Abstract

Details

Central Bank Policy: Theory and Practice
Type: Book
ISBN: 978-1-78973-751-6

Article
Publication date: 8 May 2009

Brian Briggeman and Quatie Jorgensen

Many associations in the Farm Credit System, which are financial cooperatives, pay their member‐borrowers a cash patronage payment based on the amount of loan volume with the…

360

Abstract

Purpose

Many associations in the Farm Credit System, which are financial cooperatives, pay their member‐borrowers a cash patronage payment based on the amount of loan volume with the association. In today's competitive lending environment, some Farm Credit associations have offered lower interest rates on new loans but these new member‐borrowers have to forgo their cash patronage payment to receive this new, lower‐interest rate loan. The purpose of this paper is to identify Farm Credit member‐borrowers' preferences for patronage refunds received as a cash payment versus lower fixed real estate interest rates.

Design/methodology/approach

Preferences for patronage refunds or lower fixed interest rates are elicited from Farm Credit Services of East Central Oklahoma member‐borrowers via conjoint analysis.

Findings

Results show that member‐borrowers strongly prefer patronage refunds compared to lower fixed interest rates.

Originality/value

This paper fulfills a need to better understand patronage refund programs within the Farm Credit System.

Details

Agricultural Finance Review, vol. 69 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

Open Access
Article
Publication date: 9 January 2024

Salvador Cruz Rambaud and Paula Ortega Perals

The framework of this paper is financial mathematics and, more specifically, the control of data fraud and manipulation with their subsequent economic effects, namely, in…

Abstract

Purpose

The framework of this paper is financial mathematics and, more specifically, the control of data fraud and manipulation with their subsequent economic effects, namely, in financial markets. The purpose of this paper is to calculate the global loss or gain, which supposes, for the borrower, a change of the interest rate while the contracted loan is in force or, in another case, the loan has finished.

Design/methodology/approach

The methodology used in this work has been, in the first place, a review of the existing literature on the topic of manipulability and abusiveness of the loan interest rates applied by banks; in the second place, the introduction of a mathematical-financial analysis to calculate the interests paid in excess; and, finally, the compilation of several sentences issued on the application of the so-called mortgage loan reference index (MLRI) to mortgage loans in Spain.

Findings

There are three main contributions in this paper. First, the calculation of the interests paid in excess in the amortization of mortgage loans referenced to an overvalued interest rate. Second, an empirical application shows the amount to be refunded to a Spanish consumer when amortizing his/her mortgage loan referenced to the MLRI instead of the Euro InterBank Offered Rate (EURIBOR). Third, consideration has been made to the effects and the possible solutions to the legal problems arising from this type of contract.

Research limitations/implications

This research is a useful tool capable of implementing the financial calculation needed to find out overpaid interests in mortgage loans and to execute the sentences dealing with this topic. However, a limitation of this study is the lack of enough sentences on mortgage loans referenced to the MLRI to get some additional information about the number of borrowers affected by these legal sentences and the amount refunded by the financial institutions.

Originality/value

To the best of the authors’ knowledge, this is the first time that deviations in the payment of interests have been calculated when amortizing a mortgage.

Details

Studies in Economics and Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1086-7376

Keywords

Abstract

Details

The Corporate, Real Estate, Household, Government and Non-Bank Financial Sectors Under Financial Stability
Type: Book
ISBN: 978-1-78756-837-2

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