Competitive bank loan pricing by domestic and foreign banks

What is it about?

This study examines bank practices of corporate loan pricing in the Asia-Pacific region. We find that the all-in-spread for loans (mostly term loans with longer maturities) in the Asia-Pacific region are significantly smaller than those in the US. In addition, foreign banks tend to price their loans favorably in the Asia-Pacific region, while foreign banks in the US have a higher loan spread. This finding indicates that foreign banks foster more competitive loan pricing in the Asia-Pacific region, while foreign banks in the US seem to experience a competitive disadvantage compared to domestic lenders.

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Why is it important?

Bank loan pricing and fees in the Asia-Pacific (AP) region are structurally different from those in the US. Foreign banks seem to have an ability to provide more competitive loan pricing in the AP region than in the US. These findings present evidence that the private lending markets in the AP region are different than those in the US. Lenders in the AP region can charge higher fees, but they seem to charge a significantly lower spread. The presence of foreign banks providing corporate loans seems to induce more competitive lending markets in this region.