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Causes of credit rationing

Author: ZouChunSheng Wang Peng From: www.yourpaper.net Posted: 2007-11-19 00:39:02 Read:
Due to the moral hazard widespread information asymmetry exists, commercial credit activities between banks and enterprises, to become the most important reason to generate credit rationing. This article will use the principle of information economics, from enterprise project selection and loan repayment select two angles, Analysis of moral hazard in the commercial credit, in order to explain the causes of credit rationing, and on this basis to talk about a little superficial prevention recommendations.
Select a project perspective credit rationing
First, the risk of project selection. Assume that a business decision makers, superior, inferior two projects to choose from, excellent project can be obtained probability PG the investment output per unit of G; inferior projects can be obtained according to the probability PB per unit investments output B, then gifted the expected benefits of the project the PGG, worse than the expected benefits of the project is PBB. Unit investment project is good or bad depends on the level of expected return, rather than depending on the project outputs. High an expected return of the project even if the low output of the unit investment is a priority project, an expected return items even under conditions of low probability of success to obtain high yield only an inferior project. Bank fixed income from the project investors, therefore, considered from the point of view of the bank, it certainly hope that all investors choose priority projects.
However, from the point of view of the business managers, it is the pursuit of profit maximizing behavior does not fully comply with the wishes of the bank. Under the premise of the Bank not monitor loans R, only in the case of the following conditions are met, will consciously choose priority projects that PG (G-R)> PB (B-R) (1)
(1) conversion available: R When the loan the quantity R RC, companies will choose inferior projects, while bad project success probability PB minimal, so that the bank will choose an appropriate amount of credit RS, it is a corresponding amount of credit with a preset expected return E RY is very close to the number, expressed by the formula: RS = RY ε, ε is a very small positive number, to ensure that the RS is not greater than RC. This is in fact controlled by control satisfaction borrowers (credit rationing) to the moral hazard of borrowers.
From corporate loans to repay the to select perspective of credit rationing
Assumptions enterprise from the bank interest rate r, the number of loans, investment income of R for the function f (R) of the number of loans R. So, the enterprise static profit in the unit of time represented by the following formula: л = f (R) - (1 r) R ≥ 0 (2)
If the investment income f (R) <(1 r) R, enterprises will be unable to repay the loan, such a situation is not a loan repayment of moral hazard, cause this risk may be due to enterprises choose inferior project. Corporate investment income, the payment of principal and interest and does not repay the cost of the following relationship: f (R)> (1 r) R> Cno R> Cno / (1 r) (3), which, Cno is not repayment of the cost of the enterprise will choose not to repay strategy.
The above equation reflects the economic decision-making process of the enterprise is to repay the loan. Equation (2) shows that the condition of the company to repay the loan businesses to have a positive cash income, investment income is greater than the sum of the principal and interest. Therefore, on the banks, the first condition is to choose the loan program is a positive profit. Equation (3) shows that bank to eliminate the risk of companies have chosen not to repay the strategy, should the total amount of the credit is less than Cno / (1 r) enterprise does not repay the cost of the discounted value that is less than the total credit. Therefore, the cost of non-repayment of analysis and observation enterprises become an important factor in the Bank decided to credit rationing credits, which determines the enterprise to get the maximum number of loans from the bank.
Situation facing repayment risk for banks, is the lack of effective market mechanism for the disposal of collateral, the collateral for a dedicated and strong (the majority of enterprises to the plant, and equipment as collateral), the most serious is that some banks in the credit when no to claim collateral, the enterprise can not be punished in the enterprise does not repay the credit. In this case, corporate borrowers are actually somewhat similar to sovereign debt. If the bank decides to privatization of the loans can not be recovered, the opportunity costs faced by enterprises will be smaller, the loss of business will be lower than the losses caused by the sovereign debt deadbeat. Sovereignty The Debt Repudiation will allow the debtor lost the opportunity to continue financing If, however, creditors and other creditors, there is no effective information sharing, enterprises are actually there other financing opportunities. Therefore, in order to avoid these adverse circumstances, the bank usually requires enterprises to apply for credit to provide collateral. The role of the collateral is that it increases the opportunity cost of enterprises choose not to repay their strategy.
Companies have chosen the cost of non-repayment strategy (Cno) generally include the following three parts: First, the loss of value of the collateral; lose the possibility of refinancing opportunities; Third, punishment by creditors. Using a mathematical formula is expressed as: Cno = AA PL F.
Among them: A-collateral depreciated value;
the depreciation coefficient a-collateral Auction;
P-can not be the possibility of re-financing loans;
L - the enterprise expected future credit facilities;
F-bank enterprises to take punitive behavior occurs when the cost of this part of the expenditures usually include the amount of spending and forced to settle after losing in the legal proceedings.
A commercial bank before the loan can choose the content of the negotiations in the cost of non-repayment,. If this part of the value of the assets is greater than bank credit (1 r) R, but auction makes depreciation coefficient, the banks face less risk of non-repayment. In the case of certain other factors, the larger the value the higher the cost of the enterprise does not repay the PL items. PL item factors P and L of banks and businesses, financial institutions, there are information sharing, the P value will be very high, so that a higher L values, the cost of non-repayment of the enterprise will be more high. If there is no sharing of information between the Bank, the Bank is trying to pass on the losses to other banks facing loan losses, the P value will be low. In this case, P for the entire banking industry is an exogenous variable, a single bank may endogenous variables. L enterprises seems to be an exogenous variable, but in fact L is not an independent variable, under normal circumstances, again credit limits still need new collateral, so this variable and The INTRODUCTION is not exogenous variables. The third factor in the cost of non-repayment F of enterprises and banks are endogenous variable, it depends on the efficiency of the legal system and the judicial system factors.
Analysis of enterprise does not repay the cost, the basic conclusion is that the Bank in facing enterprises choose not to repay strategy can be taken two ways: The first is credit rationing strategy that total credit amount established in accordance with Cno control , that control the amount of equation (3); second is the bank trying to influence the cost of the Cno. Therefore, due to the asymmetry of information between enterprises and banks, banks face the risk of moral hazard, leading to the generation of credit rationing.
three recommendations
From the above analysis that led to the phenomenon of credit rationing generate moral hazard because the item selection and loan repayment options. If you can eliminate the risk of moral hazard, then the credit markets will be able to reach Walrasian equilibrium (that is, all of the market system to achieve a balanced market through price movement so supply and demand in equilibrium, economic behavior uniquely based on price signals to make their own the behavior of decision-making, aside from non-equilibrium to equilibrium time adjustment process and assume that this process is instantaneous), so as to achieve Pareto optimality realm (ie the configuration of productive resources and the distribution of wealth has reached such a state, any re-change the allocation of resources or wealth distribution, have been impossible not to make anyone's situation deteriorated, so that any one situation better). Measures to guard against moral hazard in the credit market:
1. Strengthen corporate credit rating and assessment of the loan, banks and enterprises to minimize information asymmetry. Enterprises should strengthen the concept of credit, not only to take personal credit as nothing more than a sum of intangible assets, but also to try to maintain the whole social credit environment. Evade the debt of the enterprises, between enterprises, joint sanctions, to stop the provision of commercial credit. The government should strengthen the binding effect of the accounting statements, remediation credit environment, to attach importance to the administrative means, the credit assessment is included in the performance evaluation.
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