Assessing the Impact of Corporate Borrowers’ Financial Position on the Costs of Lending
I. Medvedev, I. Kozlovtceva, V. Pankova, D. Pekhalsky, O. Solntsev
In this paper, we investigate the differentiation of loan rates depending on financial condition of corporate borrowers. The analysis is conducted using the Bank of Russia’s credit registry. We made several important conclusions based on the distributions of the loan interest rates and financial indicators of Russian companies.
First, we reject hypothesis regarding “non-standard” loan pricing for borrowers with low profitability that was suggested based on preliminary analysis of corporate financial statements.
Second, high level of uncertainty that can be expressed in rapidly declining or rapidly growing revenue is associated with increased interest rates. Thus, we can conclude that financial indicators are reflected in loan interest rates accurately. Consequently, changes of the key rate are better transmitted to the costs of borrowing. However, interest rates on loans could react less on the decline in the key rate under specific conditions of systemic risk with high uncertainty regarding financial indicators (e.g. revenue growth). In such case, monetary policy may have a diminished impact on economic activity that should be considered in the monetary policy design.