Economic history of Italy

Nothing compares to your loan officer – continuity of relationships and loan renegotiation

Friday, February 26, 2021 - 12:04am

At such times, managing lending relationships effectively becomes even more important for bank governance, risk, and credit supply.

Key Points: 
  • At such times, managing lending relationships effectively becomes even more important for bank governance, risk, and credit supply.
  • My study presents evidence that continuous lending relationships between bank loan officers and corporate borrowers improve the outcomes of loan renegotiations.
  • My main findings are that firms that experience an exogenous interruption in their loan officer relationship are faced with three consequences.
  • First, the firms are less likely to renegotiate a loan compared to firms with continuous relationships.
  • Second, when loans are renegotiated, firms with interrupted loan officer relationships receive tougher loan terms.

Introduction

    • Firms in the euro area rely to a large extent on loans from credit institutions.
    • Such loans account for approximately 30% of euro area firms total liabilities and approximately 85% of their total credit.
    • For that reason, the relationship between a loan officer and a firm is expected to affect the issuance and renegotiation of a loan.
    • The central finding of the paper is that relationships between loan officers and firms do have a significant positive impact on loan renegotiation.
    • In this study firms with interrupted relationships are less likely to renegotiate a loan compared to firms with continuous relationships.
    • Lastly, firms alter their capital structure and sources of financing after the relationship with the loan officer is interrupted.

Interruption of bank lending relationships

    • Lending relationships between loan officers and borrowers may be interrupted as a consequence of bank mergers and consolidations, interventions by banking supervisors, fintech developments or regular staff rotation policies.
    • For example, banks often consolidate their branch networks in response to financial distress, as consolidation reduces operating costs and centralises lending decisions.
    • There are two main challenges for accurately estimating the impact of lending relationships on loan renegotiation.
    • The reorganisation of the bank gives rise to variation in the length of the relationships between loan officers and firms that is exogenous, i.e.
    • A bank unit closure interrupts the relationships between loan officers and firms, because merged accounts are assigned to new loan officers.
    • Hard information passes from one loan officer to another during transfers, because the transfer happens within the same bank.
    • Therefore any differences observed between the two groups after the consolidation period should be the consequence of interrupted relationships.

Impact on loan renegotiation

    • According to my results, firms assigned to a new loan officer were significantly less likely to renegotiate a loan.
    • The empirical results show a statistically significant difference in the probability of these firms renegotiating a loan compared to firms with continuous relationships.
    • In particular, the results imply a 49% probability of loan renegotiation for firms with an interrupted relationship, compared with a 59% probability for firms with a continuous relationship.
    • After the reorganisation (2014-15), the probability of renegotiating a loan is lower for the firms with interrupted relationships.
Figure 1

    Effect of an interruption in the relationship between a loan officer and a firm on loan renegotiation relative to the year before the reorganisation (2013) Source: Papoutsi (2021).
    • Moreover, when loans are renegotiated, the firms with interrupted loan officer relationships receive less beneficial terms and conditions on their renegotiated loans than firms with continuous relationships.
    • Firms with interrupted relationships face higher interest rates and significantly shorter maturities, while being required to pledge collateral for an amount 65% higher than firms with continuous relationships.
    • The plots below present the evolution of these results graphically.
    • The difference in the loan terms appears in the first year after the interruption of the relationship and increases the following year.
Figure 2

    Impact of interrupted relationships on renegotiated loans’ terms relative to the year before the reorganisation (2013) Effect on interest rate Effect on collateral value Source: Papoutsi (2021).
    • A change in the capital structure indicates that firms cannot simply substitute lending from other banks without cost when the relationship with one bank is interrupted.
    • Firms only partially substitute loans from other banks to make up for reducing the borrowing from the bank where its loan officer relationship was severed.
    • First, we do not observe a difference in loan performance in the short run between firms with interrupted relationships and firms with continuous relationships.
    • This means that the effects on the terms and conditions of renegotiated loans cannot be explained by firms performing worse economically.
    • In contrast, the impact of an interrupted loan officer relationship on loan renegotiation is found to be stronger for firms with good repayment histories, high leverage, and positive growth in earnings.

Conclusions

    • This analysis shows that lending relationships have a significant positive effect on corporate loan renegotiation, mitigating the cost of distress for firms.
    • Even though the analysis is not directly linked to the COVID-19 crisis, it provides strong evidence that continuous lending relationships help firms during default episodes.
    • An uninterrupted relationship between a particular loan officer and a firm helps eliminate frictions that arise when loans are renegotiated.
    • For example, in a context of general stress, individual firms could experience interruptions to several different bank loan officer relationships.
    • Indeed, while no one is irreplaceable, when it comes to a firms relationship with a bank changing loan officer can be a big deal.

References

    • Incentivizing calculated risk-taking: Evidence from an experiment with commercial bank loan officers, The Journal of Finance, Vol.
    • 70, pp.
    • 60, pp.
    • 103, pp.
    • 107, pp.
    • Information and incentives inside the firm: Evidence from loan officer rotation, The Journal of Finance, Vol.
    • 65, pp.
    • 73, pp.
    • Estimating the effect of hierarchies on information use, The Review of Financial Studies, Vol.
    • 22, pp.

Central 1 Announces Change in Leadership

Thursday, February 25, 2021 - 10:20pm

We are incredibly grateful for Marks exceptional leadership and many contributions to both Central 1 and the industry, said Bill Kiss, Chair of the Board of Directors.

Key Points: 
  • We are incredibly grateful for Marks exceptional leadership and many contributions to both Central 1 and the industry, said Bill Kiss, Chair of the Board of Directors.
  • Mark has been instrumental in positioning Central 1 as the partner of choice for financial, digital banking and payment products and services.
  • We remain committed to providing a high-level of service while adapting, anticipating change, and remaining agile to the needs of our members and clients.
  • Central 1 is a preferred partner for financial, digital banking and payment products and services fuelling the success of businesses across Canada.

Capital City Bank Group, Inc. Announces Cash Dividend

Thursday, February 25, 2021 - 9:23pm

TALLAHASSEE, Fla., Feb. 25, 2021 (GLOBE NEWSWIRE) -- The Board of Directors of Capital City Bank Group, Inc. (NASDAQ: CCBG) declared a quarterly cash dividend on its common stock of $.15 per share.

Key Points: 
  • TALLAHASSEE, Fla., Feb. 25, 2021 (GLOBE NEWSWIRE) -- The Board of Directors of Capital City Bank Group, Inc. (NASDAQ: CCBG) declared a quarterly cash dividend on its common stock of $.15 per share.
  • About Capital City Bank Group, Inc.
    Capital City Bank Group, Inc. (NASDAQ: CCBG) is one of the largest publicly traded financial holding companies headquartered in Florida and has approximately $3.8 billion in assets.
  • Our bank subsidiary, Capital City Bank, was founded in 1895 and now has 57 banking offices and 86 ATMs/ITMs in Florida, Georgia and Alabama.
  • For more information about Capital City Bank Group, Inc., visit www.ccbg.com .

CINC Systems Announces New Vice President of Business Development to Further Grow Paygami's Footprint in the Banking Industry

Thursday, February 25, 2021 - 3:14pm

DULUTH, Ga., Feb. 25, 2021 /PRNewswire/ --CINC Systems, the largest provider of software to the association management industry, announced yesterday a significant addition to its banking business development team.

Key Points: 
  • DULUTH, Ga., Feb. 25, 2021 /PRNewswire/ --CINC Systems, the largest provider of software to the association management industry, announced yesterday a significant addition to its banking business development team.
  • Greg McCrery, who has built a career on working collaboratively with banks, joined CINC Systems as Vice President of Business Development.
  • Greg will report directly to CINC Systems Chief Operating Officer Robert McCullar and largely focus on the company's Paygami solution.
  • "CINC Systems provides the perfect opportunity to help banks more effectively serve their valued, deposit-rich community association clients."

Your Home Digital Partners with SupportLink3, Bringing Revenue-Driving Technology to Mortgage Bankers and Homebuilders

Thursday, February 25, 2021 - 11:00am

The partnership enhances business opportunities for mortgage banking and homebuilding clients, leverages emerging technologies, and provides efficiencies to reach and engage new customers online.

Key Points: 
  • The partnership enhances business opportunities for mortgage banking and homebuilding clients, leverages emerging technologies, and provides efficiencies to reach and engage new customers online.
  • Strategies also focus on building loyalty, retaining customer relationships, and building new lines of revenue for clients.
  • Our organizations are ideally aligned, recognizing that the mortgage and financial services marketplace today may change tomorrow.
  • We utilize new technologies and new digital reach strategies, delivering superior home-consumer engagement and improved ROI for our clients.

KBRA Releases The Bank Treasury Newsletter, The Bank Treasury Chart Deck, and Bank Talk: The After-Show

Wednesday, February 24, 2021 - 11:34pm

Kroll Bond Rating Agency (KBRA) releases this months edition of The Bank Treasury Newsletter, the Bank Treasury Chart Deck, and Bank Talk: The After-Show.

Key Points: 
  • Kroll Bond Rating Agency (KBRA) releases this months edition of The Bank Treasury Newsletter, the Bank Treasury Chart Deck, and Bank Talk: The After-Show.
  • Bank treasurers are still holding off making investments in Agency MBS, except to replace run-off.
  • The Bank Treasury Chart Deck takes a step back from the specific concerns of the bank treasury world to consider the broader economic issues that will ultimately shape the banking environment in the coming years.
  • Van and Ethan also explore how digital banking and the work-from-home phenomenon presents its own operational challenges and opportunities for costly errors to occur.

Pennant Announces Credit Facility Upsize

Tuesday, February 23, 2021 - 9:30pm

The amended credit facility is supported by a lending consortium arranged by Truist Bank.

Key Points: 
  • The amended credit facility is supported by a lending consortium arranged by Truist Bank.
  • "This amended credit facility improves our long-term capital structure and, together with our strong cash flow, expands our ability to continue growing our portfolio of healthcare operations opportunistically," said Jenn Freeman, Pennants Chief Financial Officer.
  • Ms. Freeman confirmed that the proceeds of the credit facility will be used to fund acquisitions, invest in growth opportunities, cover working capital needs and for other business purposes.
  • More information about Pennant is available at http://www.pennantgroup.com .

Persistent and FinMkt Partner to Bring Point of Sale Digital Lending Solutions to Banks and Credit Unions

Tuesday, February 23, 2021 - 3:30pm

FinMkt and Persistent will provide banks and credit unions with the technology to compete in point of sale financing.

Key Points: 
  • FinMkt and Persistent will provide banks and credit unions with the technology to compete in point of sale financing.
  • "The combination of FinMkt and Persistent will provide banks and credit unions with the much-needed technology to compete in the point of sale financing space and to stay relevant.
  • Persistent's world-class systems integration expertise coupled with FinMkt's best-of-breed point of sale digital lending technology platform will empower consumers with more and better financing options.
  • "We are excited to strengthen our partner ecosystem with FinMkt's lending technology platform which will now enable us to empower banks and credit unions to offer point of sale digital lending solutions at scale, and accelerate their digital transformation journey rapidly."

Dogwood State Bank Announces Completion of $28 Million Private Placement Offering

Tuesday, February 23, 2021 - 3:00pm

Dogwood State Bank (the Bank) today announced the completion of a $28 million capital raise.

Key Points: 
  • Dogwood State Bank (the Bank) today announced the completion of a $28 million capital raise.
  • The demand for this investment opportunity was tremendous, and we are excited to welcome over 200 new shareholders to Dogwood State Bank.
  • Dogwood State Bank is a North Carolina state-chartered community bank headquartered in Raleigh, North Carolina, with approximately $612 million in total assets.
  • The Bank also specializes in providing lending services to small businesses through its Dogwood State Bank Small Business Lending Division.

Mill City Ventures announces record year in 2020

Tuesday, February 23, 2021 - 2:00pm

MINNEAPOLIS, Feb. 23, 2021 /PRNewswire/ -- Mill City Ventures III, Ltd. (OTCQB: MCVT), a leader in non-bank short-term lending and specialty finance, announced record-breaking financial performance in 2020.

Key Points: 
  • MINNEAPOLIS, Feb. 23, 2021 /PRNewswire/ -- Mill City Ventures III, Ltd. (OTCQB: MCVT), a leader in non-bank short-term lending and specialty finance, announced record-breaking financial performance in 2020.
  • "Mill City Ventures completely refashioned our business from a business development company to an aggressive non-bank short-term specialty lender.
  • "Mill City not only realized record revenues but also record profits."
  • Founded in 2007, Mill City Ventures III, Ltd., is a specialty finance company providing short-term non-bank lending.