When Banks Venture Beyond Home Turf: Consequences for Loan Performance

20 Pages Posted: 6 Sep 2017

See all articles by Yuta Tanoue

Yuta Tanoue

Graduate University for Advanced Studies (SOKENDAI) - School of Multidisciplinary Sciences

Satoshi Yamashita

The Institute of Statistical Mathematics

Date Written: September 4, 2017

Abstract

Depopulation in provincial areas has recently caused a decline in regional economies in Japan. Japanese regional banks have thus been advancing into areas outside their original operational bases, especially into major cities and urban regions. Since lending to areas outside the original operational base is inherently more uncertain (and increasing), such lending behavior is expected to significantly affect the credit risk of regional banks’ lending portfolios. In this paper, we analyze the extent to which the lending area (the local region, outside the local region or Tokyo) affects the credit risk of regional banks. By using credit data on five regional banks, we develop credit risk estimation models to analyze the effect of the characteristics of lending area. These analyses indicate that the lending area variables affect credit risk; default is less likely to occur outside the local region and in Tokyo; and the loss given default is smaller in the local region than elsewhere.

Keywords: credit risk, probability of default, loss given default, bank loan, lending area

Suggested Citation

Tanoue, Yuta and Yamashita, Satoshi, When Banks Venture Beyond Home Turf: Consequences for Loan Performance (September 4, 2017). Journal of Credit Risk, Vol. 13, No. 3, 2017. Available at SSRN: https://ssrn.com/abstract=3031840

Yuta Tanoue (Contact Author)

Graduate University for Advanced Studies (SOKENDAI) - School of Multidisciplinary Sciences ( email )

Japan

Satoshi Yamashita

The Institute of Statistical Mathematics ( email )

4-6-7 Minami-Azabu
Minato-ku, Tokyo 106
Japan

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