Bank lending strategy, credit scoring and financial crises

T.H.T. Dinh, Stefanie Kleimeier and Stefan Straetmans
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T.H.T. Dinh: Finance

No 53, Research Memorandum from Maastricht University, Graduate School of Business and Economics (GSBE)

Abstract: Adverse selection inherent in the bank-borrower relationship typically intensifies during crises. This problem is expecially severe in emerging markets, characterized by weak institutions and banks with poorly developed monitoring and screening abilities. Exploiting a unique sample of Vietnamese loans, we show that by updating their credit scoring models banks can significantly improve their screening abilities. Our results suggest that a crisis fundamentally changes default patterns and that a model based on post-crisis data outperforms models based on pre-crisis data. We conclude that updating credit scoring models is a viable alternative to credit rationing for banks and, in combination with relationship lending, can lead to improved loan pricing, efficiency and profitability.

Date: 2013-01-01
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Persistent link: https://EconPapers.repec.org/RePEc:unm:umagsb:2013053

DOI: 10.26481/umagsb.2013053

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