| dc.description.abstract | Since the loan Premium is an important source of income for the bank, but the processes are determined by different factors. This study exams how the corporate credit risk affect the loan premium and the discretion of loan premium, also shows that whether the different relationships between banks and enterprises changes the processes of loan premium setting, including the level of loan premium and the “discretion” comes from officers’ subjective experiences.
The finding supports the moral hazard hypothesis that banks grants the borrowing enterprises of higher credit risk a higher loan premium, due to the asymmetric information exists in borrowers and lenders. Secondly, in the relationships dimension, the corporate rely in a high borrowing level on private but non-financial holding banks and foreign banks will increase the loan premium as the their dependence getting closer; On the other hand, the loan premium decreases with more closer relationship between firms and public sector banks. Also, if companies have a better relationships with banks (dealing with fewer banks), they receive a lower loan premium. And the discussion of the conditions in loan contracts do not support the signaling hypothesis, banks tend to treat collaterals as a tool to reduce moral hazard risk and reduce the possible loss from defaults.
In the investigation of dispersion in loan premium, the empirical results illustrate the main factor of “discretion” caused by officers’ subjective experiences: (1) the larger the bank, with more staffs, the method of loan premium granting may be difficult to consist; (2) the positive relation between bank costs and dispersion explain the additional expense may reflect on “discretion”; (3) The salary structure of public sector banks and lending performance link weakly, the officers have no incentive to reduce loan premium to attract their customers, so the public sector banks grants lower loan premium than private banks..
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