Developing country economic structure and the pricing of syndicated credits
BIS Working Papers
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No
132
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01 July 2003
We analyse in an extensive risk return framework the determinants of the pricing
of 5,000-plus syndicated credits granted to developing country borrowers between
1993 and 2001. Syndicated loans with riskier characteristics or granted to
riskier borrowers are found to be more expensive than others, although the
effect of purely microeconomic price determinants is in several instances weaker
when macroeconomic conditions in borrowers' countries are also controlled for.
In addition to individual loan or borrower considerations, lenders seem to focus
more on macroeconomic factors to determine the pricing of their loans, such as
the level of exports relative to debt service in the developing countries where
the borrowers are located. For some, this means restricted access to external
financing. We detect possible evidence of lenders exploiting their market power.
Certain banks appear to charge a premium to change initially agreed loan terms.
Furthermore, discounts are granted on developing country loans provided by small
groups or clubs of relationship banks rather than on facilities with the
participation of a large number of institutions.