Collateral-based lending in emerging markets: Evidence from Thailand |
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| Institution: | 1. Católica-Lisbon School of Business and Economics, Palma de Cima, 1649-023 Lisbon, Portugal;2. Department of Banking and Finance, University of Zürich (UZH), Plattenstrasse 32, CH-8032 Zürich, Switzerland;3. Swiss Finance Institute, Switzerland;4. KU Leuven, Belgium;5. CEPR, United Kingdom;6. Research Department, Norges Bank, P.O. Box 1179 Sentrum, N-0107 Oslo, Norway;7. University of Groningen, Netherlands;8. Sveriges Riksbank, 10337 Stockholm |
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| Abstract: | This paper examines the role and determinants of collateral in emerging markets compared to mature ones. Analyzing a data set of 560 credit files of Thai commercial banks, we find that both the incidence and degree of collateralization are higher there than in developed markets. Thai banks use collateral primarily to reduce the higher credit risks of small and relatively young firms. Long credit relationships do not reduce collateral requirements by lowering information asymmetry. Market imperfections result from housebanks demanding higher collateral than non-housebanks, suggesting a lock-in effect for their borrowers, and from larger banks realizing higher collateral claims. |
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