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This book explores the effects of soft information utilization in
the decision process for lenders, especially concerning small and
medium-sized enterprises (SMEs) in regional markets. This study is
one of the first to use questionnaire survey data from lender
representatives, and analyzes the relationship between the
financial metrics of a lender's performance and soft information
factors in inter-bank competition. The authors' empirical results
suggest that utilizing soft information allows banks to attain a
more precise lending decision. The Financial Services Agency in
Japan introduced an action program in 2003 that requires regional
banks to shift from transaction banking to relationship lending.
Against that background, this book examines the influence of
relationship lending on a lender's performance. This study found
that relationship lending allows lenders to charge a higher premium
to counteract the high risk involved with SMEs. The book also
examines how relationship lending affects lending performance in
inter-bank competition. The conclusion is that, even though
inter-bank competition has negative effects, a bank in a
competitive local market can acquire an informational advantage to
limit its own loss. This book categorizes three soft information
factors: organizational systems, networks or
alliances/partnerships, and business/management leadership based on
survey data. The authors' findings suggest that information
production, especially network and business/leadership information,
plays an essential role in promoting a bank's profitability. These
effects are strong even when banks face high inter-bank
competition. Relationship lending not only improves bankers'
lending techniques, but also fosters and enhances their community
knowledge and enables them to survive in a highly competitive
market.
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