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Developing an Index of Credit Standards in Ukraine Using Ordered Logit Models
Hlazunov A. O.

Hlazunov, Anatolii O. (2024) “Developing an Index of Credit Standards in Ukraine Using Ordered Logit Models.” Business Inform 1:311–319.
https://doi.org/10.32983/2222-4459-2024-1-311-319

Section: Finance, Money Circulation and Credit

UDC 336.7

Abstract:
This study expands the understanding of the dynamics of credit standards in Ukraine. This publication makes an important contribution to the analysis of the supply of bank lending. A panel ordered logit model was used to build the Credit Standards Index (CRI) for different market segments. The study uses survey data on bank lending conditions at the bank level, which makes it unique, as this data is usually used at the aggregated level. The accuracy of the model is 65% for corporate loans, 84.4% for mortgages, and 77.6% for consumer loans. It is found that at the system level, banks in Ukraine tightened corporate lending standards during the crises in 2014–2015 and 2022, while standards for mortgages and consumer loans were tightened only in 2022. Based on the results of the simulation, it is determined that banks weakened lending standards only for consumer loans in 2021. It is found that the model weakly classifies banks that have softened or strengthened corporate lending standards, but for mortgages and consumer loans, the results are noticeably better. The increase in interest rates in the interbank market affects the tightening of credit standards for corporate loans. According to the results of the study, real GDP growth contributes to the weakening of standards for corporate and mortgage loans. Competition between banks may weaken standards for all market segments, but strengthen them for mortgages. Expectations of the prospects for the real estate market affect both the strengthening and weakening of mortgage lending standards. In the field of consumer lending, borrowers’ solvency expectations determine the change in credit standards in both directions. The results are important from the standpoint of using the index to study the determinants of lending in Ukraine, as the index approximates the supply of banks, which is an unobservable variable.

Keywords: ordered logit model, lending standards, lending offer.

Fig.: 5. Tabl.: 3. Formulae: 1. Bibl.: 8.

Hlazunov Anatolii O. – Postgraduate Student, Department of Finance, National University of Kyiv-Mohyla Academy (2 Skovorody Str., Kyiv, 04655, Ukraine)
Email: [email protected]

List of references in article

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Apergis, N., and Chatziantoniou, I. “Credit Supply Conditions and Business Cycles: New Evidence from Bank Lending Survey Data“. Research in International Business and Finance, art. 101332, vol. 55 (2021). DOI: https://doi.org/10.1016/j.ribaf.2020.101332
Bassett, W. F. et al. “Changes in Bank Lending Standards and the Macroeconomy“. Journal of Monetary Economics, vol. 62 (2014): 23-40. DOI: https://doi.org/10.1016/j.jmoneco.2013.12.005
Hempell, H. S., and Kok Sorensen, C. “The Impact of Supply Constraints on Bank Lending in the Euro Area - Crisis Induced Crunching?“ European Central Bank. Working Paper Series. 2010. https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1262.pdf
Lown, C., and Morgan, D. R. “The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey“. Journal of Money, Credit and Banking. 2006. http://www.jstor.org/stable/3839114
Pintaric, M. “What Is the Effect of Credit Standards and Credit Demand on Loan Growth? Evidence from the Croatian Bank Lending Survey“. Comparative Economic Studies, vol. 58, no. 3 (2016): 335-358. DOI: https://doi.org/10.1057/s41294-016-0004-2
Ricci, L., Soggia, G., and Trimarchi, L. “The Impact of Bank Lending Standards on Credit to Firms“. Journal of Banking & Finance, art. 106880, vol. 152 (2023). DOI: https://doi.org/10.1016/j.jbankfin.2023.106880
Wosko, Z. “Modelling Credit Growth in Commercial Banks with the Use of Data From Senior Loan Officers Opinion Survey“. Narodowy Bank Polski. 2015. Working Paper no. 210. https://static.nbp.pl/publikacje/materialy-i-studia/210_en.pdf

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