Collateral-Based Lending in Emerging Markets: Evidence from Thailand

31 Pages Posted: 11 May 2004

See all articles by Lukas Menkhoff

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin); Humboldt University of Berlin - Faculty of Economics

Doris Neuberger

University of Rostock - Department of Economics

Chodechai Suwanaporn

Chulalongkorn University

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.

Keywords: Bank lending, collateral, credit risk, relationship lending, emerging economies, Thailand

JEL Classification: G21, O16

Suggested Citation

Menkhoff, Lukas and Neuberger, Doris and Suwanaporn, Chodechai, Collateral-Based Lending in Emerging Markets: Evidence from Thailand. Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=485546

Lukas Menkhoff

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Humboldt University of Berlin - Faculty of Economics ( email )

Spandauer Strasse 1
Berlin
Germany

Doris Neuberger (Contact Author)

University of Rostock - Department of Economics ( email )

Ulmenstr. 69
Rostock, 18057
Germany
+49 381 498 4346 (Phone)
+49 381 498 4341 (Fax)

Chodechai Suwanaporn

Chulalongkorn University ( email )

Bangkok 10330
Thailand

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