Lernmaterialien für Financial Institutions an der Universität St. Gallen

Expected cash flow of the borrower and how related to the instalment of loa

1. State-owned banks charge lower interest rates (subsidized lending)
2. They mostly favour large firms & firms located in depressed areas
3. Lending behaviour affected by the electoral results of the party associated with the bank: the stronger the political party in the area where the firm is borrowing, the lower the interest rates charged (study carried in Italy)

• Financial obligations of the lender (principal / credit limit)
• Financial obligations of the borrower (interest, collateral, equity)
  
• Warranties
• Covenants

• Entities that intermediate btw providers and users of financial capital
• Typically hold large quantities of financial claims as assets
• More leveraged than non-financial firms (financial liabilities)

• Lending by state banks is less procyclical vs private banks -> in high income countries it is even countercyclical --> On liability side  no big expansion their total liabilities during booms --> Report loan non-performance more evenly over business cycle
• Play a useful role in stabilizing credit over the business cycle as well as during periods of financial instability – stabilizing effect, less likely to cut lending
• BUT track records remains quite poor 

• Majority: mortgage loans between 60-80% (80% is for regional banks)
• Mortgage can be given to households & small businesses (e.g. entrepreneurs can mortgage their house – quite common in continental Europe)
• Households make up roughly 60% of the total loan book and among household plans, mortgages make up 86%
  • Consumer credit : 10-15% of US commercial bank loans
  • Commercial and Industrial loans make up roughly 25% of US commercial bank loans

•  Analyses the determinants of firm participation in the Swiss COVID-19 loan programme, which aims to bridge firms' liquidity shortfalls that have resulted from the pandemic. 
•  State guaranteed COVID-19 loans are widely used by Swiss firms, with 20% of all firms participating, resulting in a sizeable programme of 2.4% of GDP. 
•  Results:
  • Participation was largely driven by the exposure of a firm to lockdown restrictions and to the intensity of the virus in the specific region. 
  • Less liquid firms had a significantly higher probability of participating in the programme. 
  • No clear evidence that firm indebtedness affected participation in the programme and no evidence that pre-existing potential zombie firms participated more strongly in the loan programme. 
  • The programme reached younger and smaller firms, which could be financially more vulnerable as they are less likely to obtain outside finance during a crisis. 
• Overall, we conclude that given its objective, the programme appears to be successful.