Abstract
Using syndicated loan data, the paper finds that loan spreads have increased and have remained elevated post-2009. Regressions, controlling for currency fixed effects, loan types, loan sizes, number of participating banks, tenors, confirm the higher spreads post-2009. Further analysis reveals that the average number of banks per syndication rose for developed economies but fell for emerging economies. This is explained by the higher market shares of non-Japanese Asian banks in developing economies post-crisis, but with lower syndication intensity. Consistent with the capital shock hypothesis, Western and Japanese banks intensify the degree of syndication post-crisis, but other Asian banks do not. The lower syndication intensity of suggests that market efficiency has declined for developing economies. Syndication should be further encouraged to reduce spreads.
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Notes
Suppose the missing data on spreads (truncation) is from below – i.e., spreads below a certain level are not recorded – or from above (spreads above a certain level are not recorded) – the resulting estimates from the regressions would then be interpreted as the lower bound given the attenuation effect.
Because of these reasons, collapsing all tranches into a single transaction would result in loss of information.
In the industry, a loan is said to have achieve financial closing when all the funding parties are in place, with the loan being made available for the borrower to draw on.
The ratings for some syndicated loan is also recorded (for Standard and Poor’s, and/or Moody’s, and/or Fitch). But for most data points, no ratings were recorded, and a default of “CCC+” is set. As most large loans will come with a rating, the presence of the rating itself becomes a good predictor on the size of loans.
The distribution of the tenor also matters. A large majority of the loans, around 95%, have tenors of 12 years or less. A check on pre- and post-2009 data does not reveal any significant shortening of loan tenors, except during a few crisis-hit years.
Returning to the issue of unobserved variables discussed under data limitations, it is useful to note that the rating agency S&P would typically incorporate information such as borrower’s strength, credit history, and collaterals before assigning a rating. Using S&P ratings as an independent variable here (instead of instrument) would have absorbed the effects of some of these unobserved variables. The fact that the regression estimates here have not changed much from the main regression therefore also offers some comfort.
In addition, the paper also performed separate regressions as follow (a) developed economies pre-crisis (b) developed economies post-crisis (c) developing economies pre-crisis and (d) developing economies post-crisis. The key results of positive coefficient for principal sum and negative coefficient for bankcount continue to hold in these separate regressions. These can be provided upon request.
The paper also tested the same correlations by removing China borrowers. The same result holds, and this shows that the result here (i.e., the lack of syndication amongst Chinese banks) is not due to their operations in their domestic market, but a more general phenomenon.
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Acknowledgements
I am grateful to the discussions and views provided by colleagues at the Bank, as well as the comments and suggestions from the referees. The views expressed in this paper are the author’s and do not necessarily reflect the views and policies of the Bank.
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Thia, J.P. Bank lending – what has changed post crisis?. J Econ Finan 43, 256–272 (2019). https://doi.org/10.1007/s12197-018-9441-2
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DOI: https://doi.org/10.1007/s12197-018-9441-2