New Economics Papers
on Banking
Issue of 2006‒08‒19
six papers chosen by
Roberto J. Santillán–Salgado, EGADE-ITESM

  1. Does diversification improve the performance of German banks? : Evidence from individual bank loan portfolios By Hayden, Evelyn; Porath, Daniel; von Westernhagen, Natalja
  2. Heterogeneity in lending and sectoral growth : evidence from German bank-level data By Buchm, Claudia M.; Schertler, Andrea; von Westernhagen, Natalja
  3. Evidence of Bank Lending Channel for Argentina and Colombia By José Gómez González; Fernando Grosz
  4. Mergers and Acquisitions in the Colombian Financial Sector (Impact on Efficiency 1990 – 2005) By Sergio Clavijo; Carlos I. Rojas; Camila Salamanca; Germán Montoya
  5. Explaining time to bank failure in Colombia during the financial crisis of the late 1990s By Jose E. Gomez-Gonzalez; Nicholas M. Kiefer
  6. La importancia de la información en los mercados de crédito By FEDESARROLLO

  1. By: Hayden, Evelyn; Porath, Daniel; von Westernhagen, Natalja
    Abstract: Should banks be diversified or focused? Does diversification indeed lead to enhanced performance and, therefore, greater safety for banks, as traditional portfolio and banking theory would suggest? This paper investigates the link between banks’ profitability (ROA) and their portfolio diversification across different industries, broader economic sectors and geographical regions measured by the Herfindahl Index. To explore this issue, we use a unique data set of the individual bank loan portfolios of 983 German banks for the period from 1996 to 2002. The overall evidence we provide shows that there are no large performance benefits associated with diversification since each type of diversification tends to reduce the banks’ returns. Moreover, we find that the impact of diversification depends strongly on the risk level. However, it is only for moderate risk levels and in the case of industrial diversification that diversification significantly improves the banks’ returns.
    Keywords: focus, diversification, monitoring, bank returns, bank risk
    JEL: G21 G28 G32
    Date: 2006
  2. By: Buchm, Claudia M.; Schertler, Andrea; von Westernhagen, Natalja
    Abstract: This paper studies the sectoral and geographical dimensions of the response of bank lending to sectoral growth. We use several bank-level datasets provided by the Deutsche Bundesbank for the 1996-2002 period. Our results show that bank heterogeneity affects how lending responds to domestic sectoral growth. We document that banks’ total lending to German firms reacts procyclically to domestic sectoral growth, while lending exceeding a threshold of €1.5 million to German and foreign firms does not. Moreover, we find that the response of lending depends on bank characteristics such as the banking groups, the banks’ asset size, and the degree of sectoral portfolio concentration. We find that total domestic lending by savings banks and credit cooperatives (including their regional institutions), smaller banks, and banks whose portfolios are heavily concentrated in specific sectors responds positively and, in relevant cases, more strongly to domestic sectoral growth.
    Keywords: bank lending, heterogeneity, sectoral growth
    JEL: F3 G21
    Date: 2006
  3. By: José Gómez González; Fernando Grosz
    Abstract: In this paper we find empirical evidence of bank lending channel for Colombia and Argentina. As for Argentina, we do not find evidence that changes in the interbank interest rate affect the growth rate of total loans directly. However, it does indirectly through interactions: the interbank interest rate affects the loan supply through its interactions with capitalization and liquidity. As for Colombia, there is direct bank lending channel, which is reinforced through interactions with capitalization and liquidity. Also, using a panel data of more than 3300 firms, we provide additional support to the existence of a bank lending channel for Colombia.
    Keywords: Monetary Transmission; Bank Lending Channel; Argentina; Colombia
    JEL: E5 E52 G21
  4. By: Sergio Clavijo; Carlos I. Rojas; Camila Salamanca; Germán Montoya
    Abstract: Colombia has witnessed a renewed interest in merging and acquiring financial institutions during 2003-2005. These have been “complementary mergers” that seek to exploit economies scale and scope. This process contrasts favorably with those mergers & acquisitions that occurred during the mid-1990s, which involved mainly “twin institutions” that lacked potential for gaining multiproduct efficiency. This document analyzes the need to remove some of the regulatory constraints that obstruct further exploitation of such economies of scale-scope and quantifies the “cost efficiencies” shown by the Colombian banking sector (1994-2005). At the aggregate level, we found (absolute) banking efficiency to be around 63%, a similar value to those found in related studies post-crisis. This implies that banks operating in Colombia have been able to recover their efficiency levels during postcrisis 2003-2005, except for mortgage institutions. We highlight regulatory barriers that could be removed to help the banking system move closer to the optimal production frontier.
    Date: 2006–07–31
  5. By: Jose E. Gomez-Gonzalez; Nicholas M. Kiefer
    Abstract: This paper identifies the main bank specific determinants of time to failure during the financial crisis in Colombia using duration analysis. Using partial likelihood estimation, it shows that the process of failure of financial institutions during that period was not a merely random process; instead, it can be explained by differences in financial health and prudence existing across institutions. Among the relevant indicators that explain bank failure, the capitalization ratio appears to be the most significant one. Increases in this ratio lead to a reduction in the hazard rate of failure at any given moment in time. Of special relevance, this ratio exhibits a non-linear component. Other important variables explaining bank failure dynamics are profitability of assets and the ratio of non-performing loans to total loans. Leverage appears to affect the hazard rate also, but with lower statistical significance.
    Keywords: Banks, financial institutions; Bankruptcy, liquidation; Colombia.
    JEL: G21 G23
    Abstract: Las centrales de información crediticia son una herramienta fundamental para efectos de evaluación de riesgo, cálculos de probabilidades de no pago y construcción de scores crediticios. Eliminar de manera pronta el dato negativo puede tener efectos contrarios a los que se buscan y puede llevar a una menor disponibilidad de crédito y a una elevación de su costo. El sector financiero debería utilizar todas las herramientas disponibles para las evaluaciones de riesgo y no sólo la información disponible en las centrales de riesgo. La mayor competencia que viene operando en el sector financiero debería reflejarse en menores costos de crédito para los usuarios que han mantenido una buena historia crediticia. El balance entre las políticas pro crecimiento y las políticas pro pobres En Colombia, país con un ingreso medio relativamente alto pero con elevados niveles de desigualdad y pobreza, las políticas deberán combinar medidas pro crecimiento y medidas pro pobres. Los resultados muestran que es importante destinar una mayor proporción de recursos públicos a la ampliación de los programas de asistencia social como Familias en Acción. En general, se evidencia que hay fallas en la focalización de los subsidios en Colombia. Encuesta de Consumo El Índice de Confianza del Consumidor alcanzó en febrero un registro de 25,1 puntos. Las expectativas de los consumidores señalan que durante 2006 la confianza continuará en niveles record. Encuesta de Opinión Financiera Los agentes esperan nuevas reducciones en los spreads de deuda. Encuesta de Opinión Empresarial Las condiciones económicas para la inversión se encuentran en un máximo histórico.
    Date: 2006–04–04

This issue is ©2006 by Roberto J. Santillán–Salgado. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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