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Bank lending strategy, credit scoring and financial crises

Author

Listed:
  • Dinh, T.H.T.

    (Finance)

  • Kleimeier, S.

    (Finance)

  • Straetmans, S.T.M.

    (Finance)

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.

Suggested Citation

  • Dinh, T.H.T. & Kleimeier, S. & Straetmans, S.T.M., 2013. "Bank lending strategy, credit scoring and financial crises," Research Memorandum 053, Maastricht University, Graduate School of Business and Economics (GSBE).
  • Handle: RePEc:unm:umagsb:2013053
    DOI: 10.26481/umagsb.2013053
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