Determinants of Corporate Loan Interest Rate: Case of Ukraine
a National Bank of Ukraine, Kyiv, Ukraine
b Kyiv School of Economics, Kyiv, Ukraine
Abstract

This paper estimates the effect of loan, borrower, and bank characteristics on corporate loan pricing in Ukraine using rich loan-borrower-bank monthly panel data from 2013 and 2020 combined with data from borrowers’ financial statements. Examining an extensive set of fixed effects, we find that larger loans, loans with a shorter maturity period and larger collateral value have lower interest rates even after controlling for borrower characteristics. We also find that larger borrowers, borrowers with more tangible assets, lower indebtedness, and a higher interest coverage ratio who operate in concentrated industries secure lower interest rates. Our findings suggest that it is crucial to take into consideration both loan and borrower characteristics when estimating the effects of banks’ health on the loan interest rate.

563
views
86
downloads
Full Text
Citation
Cite as: Shpak, S. (2021). Determinants of Corporate Loan Interest Rate: Case of Ukraine. Visnyk of the National Bank of Ukraine, 251, 4-13. https://doi.org/10.26531/vnbu2021.251.01
Citation Format

Metrics
References

Althammer, W., Haselmann, R. (2011). Explaining foreign bank entrance in emerging markets. Journal of Comparative Economics, 39(4), 486-498. https://doi.org/10.1016/j.jce.2011.03.002

Berger, A. N., Udell, G. F. (1990). Collateral, loan quality and bank risk. Journal of Monetary Economics, 25(1), 21-42. https://doi.org/10.1016/0304-3932(90)90042-3

Berlin, M., Mester, L. J. (1992). Debt covenants and renegotiation. Journal of Financial Intermediation, 2(2). 95-133. https://doi.org/10.1016/1042-9573(92)90005-X

Berlin, M., Mester, L. J. (1999). Deposits and relationship lending. The Review of Financial Studies, 12(3), 579-607. https://doi.org/10.1093/revfin/12.3.0579

Besanko, D., Thakor, A. V. (1987). Collateral and rationing: sorting equilibria in monopolistic and competitive credit
markets. International economic review, 28(3), 671-689. https://doi.org/10.2307/2526573

Bester, H. (1985). Screening vs. rationing in credit markets with imperfect information. The American economic review, 75(4), 850-855. https://doi.org/10.1006/jfin.1995.1014

Bhattacharya, S., Chiesa, G. (1995). Proprietary information, financial intermediation, and research incentives. Journal of Financial Intermediation, 4(4), 328-357.

Botsch, M., Vanasco, V. (2019). Learning by lending. Journal of Financial Intermediation, 37, 1-14. https://doi.org/10.1016/j.jfi.2018.03.002

Dell'Ariccia, G., Marquez, R. (2004). Information and bank credit allocation. Journal of Financial Economics, 72(1), 185-214. https://doi.org/10.1016/S0304-405X(03)00210-1

Francis, J., LaFond, R., Olsson, P. M., Schipper, K. (2004). Costs of equity and earnings attributes. The Accounting Review, 79(4). 967-1010. https://www.jstor.org/stable/4093083

Graham, J. R., Li, S., Qiu, J. (2008) Corporate misreporting and bank loan contracting. Journal of Financial Economics, 89(1), 44-61. https://doi.org/10.1016/j.jfineco.2007.08.005

Hubbard, R. G., Kuttner, K. N., Palia, D. N. (2002). Are there bank effects in borrowers’ costs of funds? Evidence from a matched sample of borrowers and banks. The Journal of Business, 75(4), 559-581. https://doi.org/10.1086/341635

Iyer, R., Peydró, J.-L., da-Rocha-Lopes, S., Schoar, A. (2014). Interbank liquidity crunch and the firm credit crunch: Evidence from the 2007–2009 crisis. The Review of Financial Studies, (27, 1), 347-372. https://doi.org/10.1093/rfs/hht056

Jimenez, G., Salas, V., Saurina, J. (2006). Determinants of collateral. Journal of financial economics, 81(2). 255-281. https://doi.org/10.1016/j.jfineco.2005.06.003

Khwaja, A. I., Mian, A. (2008). Tracing the impact of bank liquidity shocks: Evidence from an emerging market. American Economic Review, 98(4), 1413-1442. https://doi.org/10.1257/aer.98.4.1413

La Porta, R., Lopez-de-Silanes, F., Zamarripa, G. (2003). Related lending. The Quarterly Journal of Economics, 118(1), 231-268. https://doi.org/10.1162/00335530360535199

Michelangeli, V., Peydro, J.-L., Sette, E. (2020). Credit demand vs. supply channels: Experimental-and administrative-based evidence. Economic Working Paper, 1731. Barcelona: Universitat Pompeu Fabra. Retrieved from https://econ-papers.upf.edu/papers/1731.pdf

Rajan, R., Winton, A. (1995). Covenants and collateral as incentives to monitor. The Journal of Finance, (50, 4), 1113-1146. https://doi.org/10.1111/j.1540-6261.1995.tb04052.x

Strahan, P. E. (1999). Borrower risk and the price and nonprice terms of bank loans. FRB of New York Staff Report, 90. https://doi.org/10.2139/ssrn.192769

Valta, P. (2012). Competition and the cost of debt. Journal of Financial Economics, 105(3), 661-682. https://doi.org/10.1016/j.jfineco.2012.04.004

Rights and Permissions
This work is licensed under a Creative Commons Attribution 4.0 International License. The images or other third party material in this article are included in the article’s Creative Commons license, unless indicated otherwise in the credit line; if the material is not included under the Creative Commons license, users will need to obtain permission from the license holder to reproduce the material.
Submit Your Paper