Andreas Dietrich

Determinants of Bank Profitability Before and During the Crisis: Evidence from Switzerland

Using the GMM estimator technique described by Arellano and Bover (1995), this paper analyzes the profitability of 372 commercial banks in Switzerland over the period from 1999 to 2009. To evaluate the impact of the recent financial crisis, we separately consider the pre-crisis period, 1999-2006, and the crisis years of 2007-2009. Our profitability determinants include bank-specific characteristics as well as industry-specific and macroeconomic factors, some of which have not been considered in previous studies. The inclusion of these additional factors as well as the separate consideration of the crisis years allow us to gain new insights into what determines the profitability of commercial banks.

Why are Net-Interest Margins Across Countries so Different?

In this study, we use panel data from 121 countries over the period 1999-2012 to provide new evidence regarding why bank margins differ across countries. More specifically, we test whether, and, if so, by how much, country-level governance variables and bank-specific factors explain the net-interest margins over time. We find that both bank-specific factors and country-level governance variables are important determinants of the interest margins. We also investigate whether these determinants vary by the level of economic development by analyzing developed and developing countries separately. We find significant differences in the determinants of margins between developed and developing countries.

SME Credit Availability Around the World: Evidence from the World Bank's Enterprise Surveys

In this study, we use data from the World Bank’s Enterprise Surveys of 80 countries over the period from 2006-2011 to model the credit-allocation process for SMEs into a sequence of three steps. Based upon these three steps, we classify small businesses into four groups based upon their credit needs. In a first step, we analyze which firms do, and do not, need credit. The “no-need” firms have received scant attention in the literature even though they typically account for more than half of all small firms. We find that a “no-need” firm is older and smaller than a firm that needs credit; is more likely to be organized as a corporation and to have an outside auditor; is more likely to be owned by a male and by a foreigner; and is more likely to be located in a small city and in a country with higher GDP per capita and GDP growth. In a second step, we analyze firms who need credit but fail to apply because they feared being turned down or thought that interest rates and collateral requirements were too unfavorable (discouraged firms). Like the “no-need” group, discouraged borrowers have received little attention in the literature. Discouraged borrowers typically outnumber firms that apply for and are denied credit. Among firms that need credit, we find that a “discouraged” firm is younger, smaller and growing slower than a firm that applied for credit; is much less likely to be organized as a corporation or to have an external auditor; is less likely to run by an experienced management team or to be owned by a foreigner or female; and is more likely to located in a small city and in a country with higher inflation and lower GDP per capita but with higher GDP growth. In our third step, we analyze firms that applied for credit and either were turned down (denied firms) or were extended credit (approved firms). Among firms that apply for credit, we find that an approved firm is older, larger, and grows faster than a denied firm; is less likely to be organized as corporations but more likely to have an external auditor; is more likely to be run by more experienced management team and to be owned by foreigner and a male; and is more likely to be located in a large city and in a country with lower inflation and GDP per capita but higher GDP growth.

What Drives the Margins of Mortgage Loans

This paper empirically examines the determinants of margins for a unique dataset of 8,120 mortgage loans with fixed interest rates of a medium-sized Swiss bank over the period from 2000 to 2009. Our margin determinants include loan-specific factors, as well as external and bank-specific characteristics, some of which have not been considered in previous studies. Our results reveal that loan-specific factors explain a substantial part of our dependent variable. Furthermore, external factors such as GDP growth and inflation also significantly affect mortgage loan margins. The declining mortgage loan margins can be further explained by means of increasing operational efficiency and a growth strategy of the bank.

Bank Market Structures and Performance Around the World

This paper revisits the old discussion of the applicability of structure-conduct-performance models to the banking industry. In contrast to earlier (single) country studies, we aimed at providing an overview of how it would look like, if the model indeed would be applied over time and across a non-biased selection of a multi-country study. By analyzing 105 countries, we find – in line with parts of the earlier theoretical literature – a large variance, in terms of countries in which the model actually seems to work. This leads us into looking for actual reasons that determine the applicability of the structure-conduct-performance concept and the institutional and legal environment that allow increased profitability through collusion. We find drivers for this applicability more based on the macro level than on the bank-specific level.

Explaining Loan Rate Differentials between Small and Large Companies: Evidence from an Explorative Study in Switzerland

The lending-rate differentials between loans to small and large companies are striking. According to several studies, these disparities of loan rates are primarily a result of a lower informational efficiency at small companies. This study examines to what extent such differences in loan rates are caused not only by informational inefficiencies, but also by operational costs and the borrowers negotiation power. By using unique, hand-collected data from the pricing-structure models of 15 Swiss regional banks, we provide new empirical evidence that operational costs are a key factor in explaining differences in lending rates between small and large enterprises.