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Developing country economic structure and the pricing of syndicated credits

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  • Yener Altunbas

    (University of Wales, Bangor)

  • Blaise Gadanecz

Abstract

We analyse in an extensive risk return framework the determinants of the pricing of 5,000-plus syndicated credits granted to developing country borrowers between 1993 and 2001. Syndicated loans with riskier characteristics or granted to riskier borrowers are found to be more expensive than others, although the effect of purely microeconomic price determinants is in several instances weaker when macroeconomic conditions in borrowers' countries are also controlled for. In addition to individual loan or borrower considerations, lenders seem to focus more on macroeconomic factors to determine the pricing of their loans, such as the level of exports relative to debt service in the developing countries where the borrowers are located. For some, this means restricted access to external financing. We detect possible evidence of lenders exploiting their market power. Certain banks appear to charge a premium to change initially agreed loan terms. Furthermore, discounts are granted on developing country loans provided by small groups or clubs of relationship banks rather than on facilities with the participation of a large number of institutions.

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Bibliographic Info

Paper provided by Bank for International Settlements in its series BIS Working Papers with number 132.

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Length: 30 pages
Date of creation: Jul 2003
Date of revision:
Handle: RePEc:bis:biswps:132

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Keywords: syndicated loans; developing countries; debt;

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References

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  1. Eichengreen, Barry & Mody, Ashoka, 2000. "Lending booms, reserves and the sustainability of short-term debt: inferences from the pricing of syndicated bank loans," Journal of Development Economics, Elsevier, Elsevier, vol. 63(1), pages 5-44, October.
  2. Feder, Gershon & Just, Richard E., 1977. "An analysis of credit terms in the eurodollar market," European Economic Review, Elsevier, Elsevier, vol. 9(2), pages 221-243.
  3. Paolo Mauro & Yishay Yafeh & Nathan Sussman, 2001. "Emerging Market Spreads: Then Versus Now," OFRC Working Papers Series, Oxford Financial Research Centre 2001fe03, Oxford Financial Research Centre.
  4. Richard Cantor & Frank Packer, 1995. "Sovereign credit ratings," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 1(Jun).
  5. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262061937, December.
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Cited by:
  1. Gregory P. Nini, 2004. "The value of financial intermediaries: empirical evidence from syndicated loans to emerging market borrowers," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 820, Board of Governors of the Federal Reserve System (U.S.).
  2. Karima Bouaiss & Catherine Refait-Alexandre, 2009. "La structure des crédits syndiqués comme défense contre les problèmes informationnels - Une analyse empirique sur le marché français," Revue Finance Contrôle Stratégie, revues.org, revues.org, vol. 12(2), pages 35-68, June.
  3. Bonetti, Veronica & Caselli, Stefano & Gatti, Stefano, 2010. "Offtaking agreements and how they impact the cost of funding for project finance deals: A clinical case study of the Quezon Power Ltd Co," Review of Financial Economics, Elsevier, Elsevier, vol. 19(2), pages 60-71, April.
  4. Clark, Ephraim & Lakshmi, Geeta, 2007. "Assymetric information and the pricing of sovereign eurobonds: India 1990-1992," Global Finance Journal, Elsevier, vol. 18(1), pages 124-142.
  5. Godlewski, Christophe J. & Weill, Laurent, 2008. "Syndicated loans in emerging markets," Emerging Markets Review, Elsevier, Elsevier, vol. 9(3), pages 206-219, September.
  6. Fungacova, Zuzana & Godlewski, Christophe J. & Weill, Laurent, 2009. "Asymmetric Information and Loan Spreads in Russia: Evidence from Syndicated Loans," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 7/2009, Bank of Finland, Institute for Economies in Transition.
  7. Bouaiss, Karima & Refait-Alexandre, Catherine & Alexandre, Hervé, 2011. "Banking relationship and syndicated loans during the last financial crisis," Economics Papers from University Paris Dauphine 123456789/8559, Paris Dauphine University.
  8. João Pinto & Mário Coutinho dos Santos, 2014. "Corporate Financing Choices after the 2007-2008 Financial Crisis," Working Papers de Economia (Economics Working Papers), Faculdade de Economia e Gestão, Universidade Católica Portuguesa (Porto) 03, Faculdade de Economia e Gestão, Universidade Católica Portuguesa (Porto).
  9. Christophe J. Godlewski, 2008. "What Drives the Arrangement Timetable of Bank Loan Syndication ?," Working Papers of LaRGE Research Center, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg 2008-02, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
  10. Francesco Corielli & Stefano Gatti & Alessandro Steffanoni, 2010. "Risk Shifting through Nonfinancial Contracts: Effects on Loan Spreads and Capital Structure of Project Finance Deals," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 42(7), pages 1295-1320, October.

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