On the rationale of bank lending in pre-crisis Thailand

Abstract

Evidence from credit files is provided to examine bank lending determinants of Thai commercial banks. Their lending practice follows reasonable patterns as a standard set of variables, including indirect risk variables, explains much of the variance in interest rate spread. Reflecting institutional differences with mature markets, we find higher im-portance of relationship banking and risk control via credit availability. Information about later default reveals prudent relationship lending. However, banks could have made bet-ter use of available information about borrowers' riskiness. These findings do not sup-port a general verdict of bad banking but indicate room to improve lending decisions.