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Use of Collateral in the Argentine Banking System

Author

Listed:
  • Ricardo Bebczuk

    (Central Bank of Argentina)

  • Máximo Sangiácomo

    () (Central Bank of Argentina)

Abstract

The paper investigates the use of collateral in the Argentine banking system by exploiting a rich dataset administered by the Central Bank (Central de Deudores). The study focuses on commercial loans to firms with balance sheet information available over the 2001-2005 period. The first part reviews the theoretical and empirical literature and points out the pros and cons of pledging collateral in the context of the modern asymmetric information approach to banking. Afterward, the microeconomic determinants behind the probability of having a loan collateralized -and the corresponding percentage- are studied for a broad sample of firms. Descriptive and econometric results lend support to the traditional view that banks ask more collateral to riskier borrowers (contrary to the signaling approach). In particular, it is found that the probability increases with asset tangibility and the number of lending relationships, and goes down with borrower size and the proportion of short-term loans. The same variables, except for the number of lending relationships, satisfactorily explain the collateral-to-loan value. Surprisingly, no significant correlation was observed neither with the return on assets nor with borrower's performing status. Additionally, the ratio of banking debt and total liabilities to assets exert a positive effect on the use of collateral, while the percentage of loans coming from foreign (public) banks has a negative (positive) impact. These latter variables turn out to be significant only in some years, but they all were highly significant in cross-section exercises based on whole period averages.

Suggested Citation

  • Ricardo Bebczuk & Máximo Sangiácomo, 2010. "Use of Collateral in the Argentine Banking System," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(59), pages 131-166, July - Se.
  • Handle: RePEc:bcr:ensayo:v:1:y:2010:i:59:p:131-166
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    File URL: http://www.bcra.gov.ar/pdfs/investigaciones/59_Bebczuk.pdf
    File Function: Spanish version (versión en Español)
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    References listed on IDEAS

    as
    1. Bester, Helmut, 1994. "The Role of Collateral in a Model of Debt Renegotiation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 72-86, February.
    2. Coco, Giuseppe, 2000. " On the Use of Collateral," Journal of Economic Surveys, Wiley Blackwell, vol. 14(2), pages 191-214, April.
    3. Coco, Giuseppe, 1999. "Collateral, heterogeneity in risk attitude and the credit market equilibrium," European Economic Review, Elsevier, vol. 43(3), pages 559-574, March.
    4. Bebczuk,Ricardo N., 2003. "Asymmetric Information in Financial Markets," Cambridge Books, Cambridge University Press, number 9780521793421, May.
    5. Black, Jane & de Meza, David & Jeffreys, David, 1996. "House Price, the Supply of Collateral and the Enterprise Economy," Economic Journal, Royal Economic Society, vol. 106(434), pages 60-75, January.
    6. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    7. Menkhoff, Lukas & Neuberger, Doris & Suwanaporn, Chodechai, 2006. "Collateral-based lending in emerging markets: Evidence from Thailand," Journal of Banking & Finance, Elsevier, vol. 30(1), pages 1-21, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Argentina; asymmetric information; banks; collateral; credit; discrete choice models;

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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