Duration of consumer loans and bank lending policy: dormancy versus default risk

Kenneth Carling (), Tor Jacobson () and Kasper Roszbach ()
Additional contact information
Kenneth Carling: Office of Labor Market Policy Evaluation, Postal: Box 513, SE-751 20 Uppsala, Sweden

No 280, Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: A bank that lends money to a household faces two types of risk. Most commonly mentioned is the risk of a default. Hardly ever referred to is the risk of an early redemption of the loan - leading to dormancy. We model consumer loans' transition from an active to a dormant state and estimate a semi-parametric duration model with a data set consisting of 4,733 individuals who were granted credit by a Swedish lending institution between 1993 and 1995. We analyze the factors that determine the time to maturity on a loan and investigate the model's ability to match the maturities observed in the data. The model is used to evaluate loan applicants by their expected durations and - profits, and to derive the distribution of conditional expected durations and - profits for the loan portfolio. This enables us to draw some conclusions about the efficiency of bank lending policy.

Keywords: Bank lending policy; duration analysis; semi-parametric methods; dormancy; cost-benefit analysis. (search for similar items in EconPapers)
JEL-codes: C14 C41 C53 D61 D81 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-fmk and nep-mon
Date: Written
Note: Forthcoming in the Journal of Banking and Finance
View citations in EconPapers

Downloads: (external link)
http://swopec.hhs.se/hastef/papers/hastef0280.pdf.zip (application/pdf)
http://swopec.hhs.se/hastef/papers/hastef0280.pdf (application/pdf)
http://swopec.hhs.se/hastef/papers/hastef0280.ps.zip (application/postscript)
http://swopec.hhs.se/hastef/papers/hastef0280.ps (application/postscript)

Related works:
Working Paper: Duration of Consumer Loans and Bank Lending Policy: Dormancy Versus Default Risk (1998)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:hhs:hastef:0280

Access Statistics for this paper

More papers in Working Paper Series in Economics and Finance from Stockholm School of Economics
Address: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
Contact information at EDIRC.
Series data maintained by Helena Lundin ().