Collateral Quality and Loan Default Risk: The Case of Vietnam

In the transition economy of Vietnam, financial market is dominated by banking sector but commercial banks heavily rely on collateral-based lending. While the relationship between collateral and implied credit risk is still in debate, this paper provides additional empirical evidence regarding the heterogeneous effects and transmission channels of collateral characteristics on loan delinquency. Applying instrumental variable probit analysis on a unique dataset of 2295 internal loan accounts in Vietnam, we find the significantly negative impact of collateral quality on the probability of default of consumer loans, supporting the dominance of borrower selection and risk-shifting over lender selection effects. The finding implies that high-quality collateral not only signals more credible borrower but also fosters good behavior in using loan, enabling bank to mitigate adverse selection and moral hazard problems

The Number of Bank Relationships of Smes: A Disaggregated Analysis for the Swiss Loan Market

The present paper investigates the number of bank relationships of small and medium-sized enterprises in Switzerland using survey data from 1996 and 2002. We differentiate between overall bank relationships and lending relationships and disaggregate the loan market with respect to firm sizes, industries and banking groups. On average, bank lending declined, while the role of housebank relationships increased in 1996-2002. The development of the number of bank relationships seems to have been demand-driven as well as supply-driven for medium-sized firms, but only supply-driven for very small and small firms. Supply-side reductions resulted from the merger between two big banks and changes in credit risk management at major banks

Why Do Borrowers Pledge Collateral? New Empirical Evidence on the Role of Asymmetric Information

An important theoretical literature motivates collateral as a mechanism that mitigates adverse selection, credit rationing, and other inefficiencies that arise when borrowers hold ex ante private information. There is no clear empirical evidence regarding the central implication of this literature - that a reduction in asymmetric information reduces the incidence of collateral. We exploit exogenous variation in lender information related to the adoption of an information technology that reduces ex ante private information, and compare collateral outcomes before and after adoption. Our results are consistent with this central implication of the private-information models and support the empirical importance of this theory

The Effects of the Bank-Internal Ratings on the Loan Maturity

The paper focuses on the effects of three different internal bank ratings - Risk-, Property- and Creditworthiness-Rating - on the loan maturity. We use a sample of about 5,000 loans given to sole proprietors and corporate borrowers by two German banks from January 2003 till July 2005. The estimation results for corporate borrowers are consistent with Diamond's (1991) predictions of non-monotonic relationship between ratings and maturity. The best rated and the worst rated loans tend to have shorter maturities than loans with an intermediate rating. However, our results for sole proprietors conflict with the predictions of Diamond and with the majority of the empirical literature. We find a negative association between ratings and maturity of the loans given to sole proprietors

A novel BACE inhibitor NB-360 shows a superior pharmacological profile and robust reduction of amyloid-β and neuroinflammation in APP transgenic mice

BACKGROUND: Alzheimer’s disease (AD) is the most common form of dementia, the number of affected individuals is rising, with significant impacts for healthcare systems. Current symptomatic treatments delay, but do not halt, disease progression. Genetic evidence points to aggregation and deposition of amyloid-β (Aβ) in the brain being causal for the neurodegeneration and dementia typical of AD. Approaches to target Aβ via inhibition of γ-secretase or passive antibody therapy have not yet resulted in substantial clinical benefits. Inhibition of BACE1 (β-secretase) has proven a challenging concept, but recent BACE1inhibitors can enter the brain sufficiently well to lower Aβ. However, failures with the first clinical BACE1 inhibitors have highlighted the need to generate compounds with appropriate efficacy and safety profiles, since long treatment periods are expected to be necessary in humans. RESULTS: Treatment with NB-360, a potent and brain penetrable BACE-1 inhibitor can completely block the progression of Aβ deposition in the brains of APP transgenic mice, a model for amyloid pathology. We furthermore show that almost complete reduction of Aβ was achieved also in rats and in dogs, suggesting that these findings are translational across species and can be extrapolated to humans. Amyloid pathology may be an initial step in a complex pathological cascade; therefore we investigated the effect of BACE-1 inhibition on neuroinflammation, a prominent downstream feature of the disease. NB-360 stopped accumulation of activated inflammatory cells in the brains of APP transgenic mice. Upon chronic treatment of APP transgenic mice, patches of grey hairs appeared. CONCLUSIONS: In a rapidly developing field, the data on NB-360 broaden the chemical space and expand knowledge on the properties that are needed to make a BACE-1 inhibitor potent and safe enough for long-term use in patients. Due to its excellent brain penetration, reasonable oral doses of NB-360 were sufficient to completely block amyloid-β deposition in an APP transgenic mouse model. Data across species suggest similar treatment effects can possibly be achieved in humans. The reduced neuroinflammation upon amyloid reduction by NB-360 treatment supports the notion that targeting amyloid-β pathology can have beneficial downstream effects on the progression of Alzheimer’s disease

The role of demographics in small business loan pricing

To sustain growth in an aging economy, it is important to ease the financing of small firms by bank loans. Using bank internal data of small business loans in Germany, we examine the determinants of loan rates in the period 1995-2010. Beyond characteristics of the firm, the loan contract, and the lending relationship, demographic aspects matter. However, collateral and relationship lending play a larger role in loan pricing than the entrepreneur's age. Banks do not seem to discriminate older borrowers by higher loan rates. We rather find statistical discrimination of younger borrowers because of their lower wealth. Single entrepreneurs obtain cheaper loans than married ones. Firms in peripheral regions with low population density are disadvantaged by higher loan rates compared to those in agglomerated regions

Is There a Hold-Up Benefit in Heterogeneous Multiple Bank Financing?

This paper studies the effects that heterogeneous multiple bank financing has on a firm's risk- and information-policy, particularly with respect to credit renegotiation efficiency. We find that a significant, yet limited, degree of relationship lending enables firms with high asset specificity to credibly signal their desire to abstain from strategic default. This allows the firm's policy to eliminate the risk of inefficient liquidation even in the case of bleak cash-flow expectations. This hold-up benefit comes at a cost, though: firms with low asset specificity cannot always eliminate the risk of coordination failure by their banks