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Developing country economic structure and the pricing of syndicated credits

  • Yener Altunbas

    (University of Wales, Bangor)

  • Blaise Gadanecz

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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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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  1. Barry Eichengreen & Ashoka Mody, 1999. "Lending Booms, Reserves, and the Sustainability of Short-Term Debt: Inferences from the Pricing of Syndicated Bank Loans," NBER Working Papers 7113, National Bureau of Economic Research, Inc.
  2. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, June.
  3. Paolo Mauro & Nathan Sussman & Yishay Yafeh, 2002. "Emerging Market Spreads: Then Versus Now," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 695-733, May.
  4. Richard Cantor & Frank Packer, 1995. "Sovereign credit ratings," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 1(Jun).
  5. Feder, Gershon & Just, Richard E., 1977. "An analysis of credit terms in the eurodollar market," European Economic Review, Elsevier, vol. 9(2), pages 221-243.
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