Bank lending strategy, credit scoring and financial crises
AbstractAdverse 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.
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Bibliographic InfoPaper provided by Maastricht : GSBE, Graduate School of Business and Economics in its series Research Memorandum with number 053.
Date of creation: 2013
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Web page: http://www.maastrichtuniversity.nl/web/UMPublications.htm
Financial Markets and the Macroeconomy; Banks; Depository Institutions; Micro Finance Institutions; Mortgages; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance;
Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-10-18 (All new papers)
- NEP-BAN-2013-10-18 (Banking)
- NEP-CFN-2013-10-18 (Corporate Finance)
- NEP-MAC-2013-10-18 (Macroeconomics)
- NEP-SEA-2013-10-18 (South East Asia)
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