The Factors Affecting Bank Loans
Factors Affecting Bank Loan
According to Zewdu (2010), the sources of fund for lending are reserve, deposits and capital. All these sources may be affected by different factors and would have a direct influence on lending. Since lending is the principal function of banking industry, the management of banks should give due attention, analyse and take the necessary measures on time on internal and external factors that affect or limit lending. Without lending, banks’ incomes especially interest income would highly deteriorate and affect bank survival. In case, since nonperforming loans (NPLs) has a direct reflection of poor asset quality, the factors that influence banks loans have their own impact on NPLs (Rawlin et al. 2012).
According
…show more content…
Diversification’ hypothesis: The bank size and the proportion of non-interest income as a segment of total income are adversely related to NPLs. The moral hazard of too-big-to-fail (henceforth TBTF) banks embodies another channel relating bank-specific characteristics with NPLs. A policy apprehension is that TBTF banks may take unnecessary risk since there is no market discipline which is imposed by its creditors who expect government intervention in case of a bank’s failure (Stern and Feldman, 2004). Subsequently, large banks may exert excessive influence and grant loans to lower quality borrowers.
Empirical studies do not provide clear-cut evidence for a differential performance and risk attitude of TBTF banks. For example, Boyd and Gertler (1994) claim that in the 1980s the tendency of US large banks towards riskier portfolios were encouraged by the US government’s TBTF policy. On the other hand, Ennis and Malek (2005) examine US banks’ performance across size classes over the period 1983–2003 and conclude that the evidence for the TBTF alterations is in no way definite.
Thus, below hypothesis may be
…show more content…
They used the panel data of 35 commercial banks from six African countries over the period 2001-2010. They used fixed effect model to examine impact of bank size, GDP growth and capital adequacy ratio on NPLs. The study found negative significant impact of CAR on the level of NPLs. Their finding justifies as more diversified banks and well capitalized banks are better able to withstand potential credit. However, inflation variable is statistically insignificant in explaining the total business loans ratios of
Hoover Dbq
1435 Words | 6 PagesMany banks had collapsed or were substantially injured as the result of Black Tuesday. But it did have a little impact (Nash 334-336). The National Credit Corporation was composed of the major banks in the United States. NCC’s main goal was lending money to small banks in the United States in order to minimize the repercussions of the smaller bank’s crash. However the major banks did not want to lend money to the smaller banks because they were having problems themselves (Nash 336-337).
New Deal Dbq
693 Words | 3 PagesThe FDIC protected the deposits of individuals at banks by insuring up to 2,500 dollars of their deposit. This policy, along with other efforts to mend the faults in the banking system, were established in the banks across the country. By doing this, bank closures that had become extraordinarily prevalent in the early 1930’s were almost nonexistent in 1934 and beyond; many financial institutions during the Roaring 20’s invested money in unstable stocks in hopes of making significant gains, and this played a major role in the bank failures following the stock market crash. By restricting the banks and requiring them to insure the deposits of American citizens, the FDIC was successful in making the banking systems of America safer and more
Dbq Great Depression
393 Words | 2 PagesWhat happened to all the banks then? Well first off people had complete trust in them, that is until the stock market crashed. Banks had invested a lot of money in the stock market also. But when it crashed they lost it all and
Essay On Federal Reserve Act 1913
1004 Words | 5 PagesFederal Reserve Act 1913 The Federal Reserve Act of 1913 was formed the Federal Reserve System with a view to provide a safer, flexible, risk free and more stable and sound monetary and financial system to the country. The main function of the Federal Reserve in accomplishing this objective is to regulate and control various financial institutions. It achieves this goal through micro prudential regulation and monitoring of banks; holding companies and their subsidiaries; and other financial companies including non- banking financial institutions .Off -Site Monitoring in its ongoing off-site supervision of banks and holding companies, the Federal Reserve uses automated systems to, actively identify the institutions with poor or weakened financial
Dust Bowl Dbq
1117 Words | 5 PagesDuring the 1920’s there was a sense of a booming economy leading more people to buy on credit with the economy being stable. However after the stock market crash droves of people rushed to withdraw their money. This caused many problems for the banks as they had invested money into the stock market themselves, many closed down leaving millions questioning where their money had gone. This is the main reason people viewed banks as untrustworthy and feared giving them there hard earned money. This is why President Roosevelt created programs such as the FDIC to create a trust between the people and the government.
New Deal Dbq
729 Words | 3 PagesAnother reform to the Emergency Banking Act of 1933 happened three months later. The new reform increased the power of the Federal Reserve to regulate banking, which divided the banks that dealt with public deposits of investors on Wall Street (Rauchway). Roosevelt feared that one day the FDIC would have to pay out too large a sum, which would lead to the closing of more banks, but he agreed with the reform anyway (Rauchway). In 1935 the FDIC obtained a permanent charter, and now plays a large role in today’s banking
The Great Depression Essay
1141 Words | 5 PagesThe Great Depression started with the stock market crash of 1929. “In 1925, the total value of the NEW YORK STOCK EXCHANGE was $27 billion. By September 1929, that figure skyrocketed to $87 billion” (The Market Crashes 1). Stocks were being sold for way more than their reasonable value and that couldn’t go on indefinitely. Although more people in the U.S.owned stock than ever before, “90% of American households owned precisely zero shares of stock” (Sinking Deeper and Deeper 1).
Second Bank Of America Research Paper
837 Words | 4 PagesWhat was The Second Bank of America? Why was it such a huge deal in American history? Who supported it, and who did not? Why did it fail? This essay will help explain the answer to each of these questions about the Second Bank of America, or how it was more commonly called, The Bank of the United States, and will inform you of what is used for today.
The Influence Of Student Loan Debt
767 Words | 4 PagesFamilies, who have their own issues, now need to confront the challenges of concocting cash that they scarcely have all together for their child to get instruction at a college institution. Student loan debt is common and is anticipated for undergraduates to seek higher education subsequent to graduating from their high school. College tuition costs are soaring, and a majority of undergraduates experience issues paying for their educational costs. To pay for their college expenses, most students require loans and toward the end of four years, those wind up owing debtors. Student loan debt has an unremitting impression on the lives of those within its grasp, influencing the manner in which they make important life choices.
Student Loans: The Rise Of Student Debt
334 Words | 2 PagesStudent loans is the second highest source of debt of $2.1 trillion dollars in the U.S. economy right now. This student loan debt is not only affecting the entire economy as a whole. In America, people believe that earning at Bachelor’s degree is the key to success in order to be financially secure be set in life. However at the same time, the cost of tuition has skyrocketed, and the borrowing of loans rise with it. The rising of student loan and debt will reduce consumption, lower investing, lower the rate of home ownership, and overall make it difficult to sustain financial stability.
Apush 2003 Dbq
141 Words | 1 PagesIn Addition to maldistribution stood the credit structure of the economy, some farmers were in deep land mortgage debt, so they lowered their crop prices in order to regain credit, and because the farmers were no longer accountable for what they owed banks. Across the nation the banking system found themselves in constant trouble. In America both small and large bankers were concerned for their survival, so they began investing recklessly in stock markets and granting unwise loans. These unconscious decisions would lead a large consequence, such as families losing their life savings and their deposits became uninsured. “ More than 9,000 American banks either went bankrupt or closed their doors to avoid bankruptcy between 1930 and 1933.”Although
Examples Of The Impeachment Of Andrew Jackson
693 Words | 3 PagesThe national bank was incredibly biased in its working, which completely eliminated any equal opportunities for the nation’s people. The bank only favored those who were amongst the rich and powerful. For one, the bank has most frequently been run by those tied to Northern industry. Therefore, little funding or loans have been given to western expansion or to any other southern interests. In addition to these biased actios, Congress itself has granted exclusive privileges to wealthy bank stockholders.
Alexander Hamilton's Transportation Revolution
1568 Words | 7 PagesThis act enables creditors to gain power and it gives large-scale entrepreneurs an advantage in competing for investment capital. One major weakness of the system is that it restricts beginning entrepreneurs entry into markets because the banks need reserves, which prevents long-term
Pestle Analysis Of Maybank Malaysia
709 Words | 3 PagesExample, Malaysia is a country with growing economy and general rules which effect Maybank would be interest rates. It would be difficult for the loaners to pay back the money if the interest rates is set too high. Then, most of Malaysian people bankrupt due to paying loans with high interest. This will not benefit Maybank because the money has been loaned out has not return in. So, Maybank is now giving out loans to boost the export activity for exporting activity.
More about The Factors Affecting Bank Loans
Hoover Dbq
1435 Words | 6 PagesNew Deal Dbq
693 Words | 3 PagesDbq Great Depression
393 Words | 2 PagesEssay On Federal Reserve Act 1913
1004 Words | 5 PagesDust Bowl Dbq
1117 Words | 5 PagesNew Deal Dbq
729 Words | 3 PagesNew Deal Dbq
750 Words | 3 PagesThe Great Depression Essay
1141 Words | 5 PagesSecond Bank Of America Research Paper
837 Words | 4 PagesThe Influence Of Student Loan Debt
767 Words | 4 PagesStudent Loans: The Rise Of Student Debt
334 Words | 2 PagesApush 2003 Dbq
141 Words | 1 PagesExamples Of The Impeachment Of Andrew Jackson
693 Words | 3 PagesAlexander Hamilton's Transportation Revolution
1568 Words | 7 PagesPestle Analysis Of Maybank Malaysia
709 Words | 3 Pages