Bank Loan Pricing in the Asia-Pacific Region
Chotigeat, Tosporn, Harjoto, Maretno A., Yi, Ha-Chin, Multinational Business Review
This study examines bank practices of corporate loan pricing in the Asia-Pacific region. We find that the all-in-spread for loans (mostly term loans with longer maturities) in the Asia-Pacific region are significantly smaller than those in the US. In addition, foreign banks tend to price their loans favorably in the Asia-Pacific region, while foreign banks in the US have a higher loan spread. This finding indicates that foreign banks foster more competitive loan pricing in the Asia-Pacific region, while foreign banks in the US seem to experience a competitive disadvantage compared to domestic lenders.
The level of private lending activity in the United States has recently undergone significant growth. Houston and James (1996) provide evidence that two thirds of US corporate debt is in the form of bank loans. While many studies examine bank loan characteristics in the US, only a few analyze global bank-lending activities.1 Some researchers examine bank loans on a single country basis (e.g., Smith 2003; Chotigeat, Kramer, and Pyun 2004) or on a limited time basis (e.g., Ramcharran 1999); however, studies investigating private lending behavior collectively and comprehensively within Asia-Pacific (AP) countries are rare. This study contributes to the existing literature by focusing on private debt (bank loan) characteristics in AP countries.
Over the last decade, the number of bank loans in AP countries has grown rapidly. In 2000, 1,139 private loans were transacted, with total loan facilities close to $400 billion. This number more than doubled in the following four years, and the total loan amount grew to a little over $540 billion. While the loan numbers in the AP are still about one third of those in the US, its growth is not trivial. This study focuses on private lending characteristics in the AP countries: Australia, New Zealand, Indonesia, Singapore, Malaysia, Philippines, Thailand, Taiwan, Japan, South Korea, and India.
Carey and Nini (2007) document that private lending activities in the US and Europe are dominated by the role of domestic banks as loan originators. Several studies show that the role of bank loan activities in Japan is unique (Hoshi, Kashyap, and Scharfstein 1990, 1991; Hoshi and Kashyap 1999; Kang and Stulz 2000; Morck and Nakamura 2000). Knowing that the bank loan characteristics are different in AP countries, this study focuses on investigating the corporate loan characteristic differences between private debt originated in the AP region and private debt originated in the US. Specifically, it investigates the loan cost (measured by the all-in spread and spread), fees, and role of foreign banks' lending activities in the spreads and fees of private debt from 1992 to 2004.
The remainder of this study is organized as follows. The following section presents a short summary of relevant existing studies. Next, we explain our methodology and the data used in this study. The next section describes the sample and the univariate statistics used. The results section discusses the findings from the regression analysis and summarizes the major findings, concluding with the contributions of this study.
Prior studies in global lending activities focus on the impact of legal rights and laws on the amount of corporate debt or equity ownership concentration (La Porta, Lopez-de-Silanes, Shleifer, and Vishny 1997, 1998). Recent literature that investigates the global loan syndication also focuses on the impact of different laws and legal systems, financial market structure, creditors' rights, and the origins of legal systems. Esty and Megginson (2003) find that loan ownership concentration is significantly lower (syndicate size is significantly higher) in countries that have civil laws (as opposed to common laws) and in countries with weak creditor rights and weak legal enforcement. Qian and Strahan (2007) also find that countries with better creditor protection laws have more concentrated loan ownership, longer maturity, and lower interest spreads. …