Bank Loan Deterioration: Is It All Fault of the Crisis?

Giorgio Calcagnini, Rebel Cole, Germana Giombini and Giuseppe Travaglini

No 1907, Working Papers from University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini

Abstract: Despite the recent academic focus on the effects of the crisis on bank loan quality, a fully satisfying analysis of their causes is still missing, likely because of a lack of detailed information on bank-borrower relationships and the way loan decisions are taken within banks. Thanks to the availability of a large dataset provided us by a regional Italian bank for the three calendar years 2010-2012, we are able to describe changes occurred in the bank loan quality of 3,103 firms, primarily small- and medium-sized firms. Besides a generalized deterioration of the loan quality due to the crisis, our findings show that the loan quality (as measured by each loan rating) is largely influenced by how information is processed and used at the different hierarchical levels within the bank at the time of loan decisions. More specifically, the deterioration of loan quality increases as the loan approval decision is made at higher levels of the lending-decision hierarchy, while it decreases with the firm age, size and the proximity of firms to the bank. The latter result supports the primacy of relationship-lending technology relative to transaction-based lending technology.

Keywords: SMEs funding; Relationship lending, Bank-loan policies. (search for similar items in EconPapers)
JEL-codes: G21 G24 O16 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2019, Revised 2019
New Economics Papers: this item is included in nep-ban and nep-eur
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