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Participation of Japanese regional Banks in International Syndicated Loans: Lending
behavior and explanatory factors
Masaki YAMAGUCHI
Yamagata University
Annual Tokyo Business Research Conference, Waseda University, 15-16 December, 2014
Motivation
• Hot issue – international syndicated loans• Gunma Bank – 10 billion yen buildup by the end of FY2013
• Hyakugo Bank – 55 billion yen buildup by the end of FY2015
• Chiba Bank – 20% increase of foreign currency loans by the end of FY2017
• Growth strategies of regional banks• Loan demand cannot be expected to increase amid fierce competition in
shrinking regional economies
• Participation in syndicated loans could serve as a new source of profits for regional banks
Research Questions
1. Characteristics of deals that regional banks participated?
2. Factors which enhance regional banks’ participation ?
Questions
Motivation
Related literature
Analysis 1 Analysis2
Result1 Result2
Related literature
• Type 1: Decision of syndication• Influencing factors on decision whether set up a syndicate or not
• binary-choice model, Syndicate = F (Information, Agency, Loan term)
• Dennis and Mullineaux (2000), Godlewski and Weil (2008)
• Type2: Size of a syndicate• what factors affect the syndicate structure
• count data model, Size = F (Opaque, Loan Characteristics)
• Lee and Mullineaux (2004) , Sufi (2007)
Related literature
• Type 3 : Difference in lending behavior• Difference between bank types
• Model; Spread = F (loan terms, bank types)
• Haselmann and Wachtel (2011), Harjoto, Mullineaux, and Yi (2006)
• Position of this study• close to the first type
• different in research object ; regional banks
Data Source
• Thomson Reuter – DealScan: Loan Database
• Sample: 10,907 deals, Japanese banks participated
• Period: 2009 – Sep. 2014
• Location: All over the world
Japanese banks
Regional banks
League Table: 2009 – Sep. 2014Bank Name
Number ofDeals
Bank NameNumber ofDeals
Bank NameNumber ofDeals
Chiba 80 Fukuoka 4 Kinki Osaka 1
Hachijuni 32 Oita 3 Hokkoku 1
Yamaguchi 26 Hyakujushi 3 Fukui 1
Chugoku 24 Ogaki Kyoritsu 3 Kyoto 1
Shizuoka 18 Tsukuba 3 Hokuto 1
Gunma 16 Akita 3 Shonai 1
Yokohama 12 Higashi-Nippon 2 Michinoku 1
Hiroshima 12 Toho 2 Nishi-Nippon 1
Minato 12 Joyo 2 Aomori 1
Iyo 5 Higo 2 Shiga 1
77 5 Daishi 1 Ashikaga 1
Hyakugo 4 Dasan 1 Keiyo 1
Borrower CountryBorrowercountry
Number ofDeals
Borrowercountry
Number ofDeals
USA 61 UK 5
Korea 17 Vietnam 4
China 12 Sweden 3
India 12 Chile 2
Panama 11 Malaysia 1
HK 10 UAE 1
Thailand 9 Cayman 1
Indonesia 9 Netherland 1
Singapore 8 Brazil 1
Australia 7 Belgium 1
Liberia 6 Canada 1
Mexico 5 Philippines 1
・US takes the top borrower nationality
・83 borrowers from Asian countries
Hypothesis 1: Asian nationality enhances the possibility of regional banks participation
Geographical proximity reduces information asymmetry
CurrencyCurrency
Number ofDeals
Percentage
USD 108 57.1
JPY 61 32.3
CNY 5 2.6
HKD 4 2.1
US Equiv 4 2.1
AUD 3 1.6
Multi 2 1.1
CAD 1 0.5
Euro 1 0.5
・Large share of USD can be partly explained by the borrower nationality
・Hypothesis 2: regional banks prefer to syndicated loans denominated in JPY
Most regional banks have difficulty with funding USD
PurposePurpose
Number ofDeals
Percentage
Corporate purposes 81 42.9
Working capital 43 22.8
Debt Repay 21 11.1
Ship finance 15 7.9
Capital expend 13 6.9
Project finance 6 3.2
CP backup 3 1.6
Takeover 3 1.6
Equip. Purch. 2 1.1
Aircraft 1 0.5
Security Purchase 1 0.5
・Top three loan purposes account for 76.8%
・Capital expenditures, project financing, equipment purchases….difficult to measure the success and failure of long-term projects
・Hypothesis 3: Regional banks avoid taking on such risks
Analysis 1 :Comparison
Participation Non-Participation
Means Sample Means Sample
Loan Size (millions) 355 189 679 10717 0.00
Maturity (years) 4.98 187 4.59 10471 0.04
Number of lenders 10.8 189 11.5 10703 0.00
Regional Bank Regional Bank
U test
Regional banks prefer smaller loans
Participation N on-Participation
N Ratio (%) N Ratio(%)
0 128 10617
1 61 101
0 81 2942
1 108 7776
0 146 10119
1 43 599
0 108 4789
1 81 5929
0 95 5204
1 94 5514
0 162 9686
1 27 1032
0 108 9578
1 81 1140
0 120 9735
1 69 983
Regional B ank Regional B ank
χ2 test
JPY 32.3 0.9 0.00
U SD 57.1 72.6 0.00
W orking C apital 22.8 5.6 0.00
C orp. Purpose 42.9 55.3 0.00
Rating 49.7 51.4 0.64
Financial 36.5 0.0 0.00
G uarantor 14.3 9.6 0.03
Asia 42.9 10.6 0.00
Analysis 2: Probit model
Expalined variable Explanatory variables
Regional banks’ participation ← - Loan Character
1 or 0 log(amount), maturity, rating
currency, guarantor
- Loan Purpose
working capital, corp. purpose
- Borrower Character
country, industry
M odel 1 M odel 2 M odel 3 M odel 4 M odel 5
LAO M O U N T -0.123** -0.123** -0.124** -0.084** -0.082**
(0.026) (0.026) (0.026) (0.028) (0.029)
M ATU RITY -0.003 0.009 0.008 0.013 0.031**
(0.011) (0.011) (0.011) (0.011) (0.011)
RATE 0.155* 0.144 0.161* 0.300** 0.217**
(0.073) (0.074) (0.075) (0.081) (0.083)
JPY 1.924** 1.844** 1.864** 1.847** 1.835**
(0.115) (0.116) (0.117) (0.118) (0.12)
N U M B ER 0.013** 0.015** 0.015** 0.013** 0.014**
(0.003) (0.003) (0.003) (0.003) (0.003)C O RP. -0.072
(0.068)
W O RKIN G 0.525** 0.503** 0.434** 0.407**
(0.097) (0.097) (0.099) (0.102)
G U ARAN TO R 0.197** 0.006
(0.096) (0.103)
ASIA 0.754** 0.663**
(0.081) (0.083)
FIN AN C IAL 0.624**
(0.083)
C O N ST -0.072 -0.222 -0.233 -1.230* -1.423**
(0.482) (0.483) (0.483) (0.527) (0.552)
Sam ple 10643 10643 10643 10643 10643
Pseudo R 2 0.173 0.187 0.189 0.233 0.264
Summary of results• Smaller loans, JPY preference ← funding problem for foreign currencies
• WORKING ← lower risk of project
• ASIA, RATE ← smaller information asymmetry
• Financial ← implicit guarantee
• IFRS Bank ← human resources for overseas transactions
Explanatory variable Marginal effect Explanatory variable Marginal effect
LAOMOUNT -0.001 NUMBER 0.000
MATURITY 0.001 WORKING 0.014
RATE 0.004 ASIA 0.027
JPY 0.262 FINANCIAL 0.024
・JPY produces the greatest effect on the probability of
participation
・ASIA and FINANCIAL have the next strongest marginal
effects