Practices, Findings, and Recommendations for Reducing Asymmetric Information in the Credit Evaluation Process

Mehmet Mete Karadağ and Hüseyin Selimler
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Mehmet Mete Karadağ: Istanbul Aydin University
Hüseyin Selimler: T.C. Ziraat Bankası A.Ş.

Journal of Finance Letters (Maliye ve Finans Yazıları), 2014, vol. 29, issue 101, 91-131

Abstract: Asymmetric information in financial markets refers to a situation that one party of a financial transaction has more information than the other. These situations lead to two problems in financial markets: “Adverse Selection” and “Moral hazard”. A market where there is abundance of asymmetric information increasingly moves away from efficiency and perfect competition conditions. To prevent these negative circumstances, governments should contribute to increasing available information to parties and to the equalization of it. In Turkey, Credit Bureau, Central Bank of The Republic of Turkey (CBRT) and The Banks Association of Turkey (BAT) undertake important tasks and provide different products and services for minimizing asymmetric information problems. Even though more information is produced and is utilized in the crediting process the credit amounts transferred to non-performing loan accounts has increased. In addition to obtaining information; accurate interpretation of them and careful monitoring after credit extension help to minimize defaults due to asymmetric information. This study analyzes some practices about minimizing asymmetric information in the process of retail and commercial loan evaluation and makes suggestions to resolve asymmetric information problems.

Keywords: Asymmetric Information; Loan; Adverse Selection; Moral Hazard; Credit Rationing (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:acc:malfin:v:29:y:2014:i:101:p:91-131

DOI: 10.33203/mfy.519248

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