This book explores the effects of soft information utilization in the
decision process for lenders, especially concerning small and
medium-sized enterprises (SMEs) in regional markets. This study is one
of the first to use questionnaire survey data from lender
representatives, and analyzes the relationship between the financial
metrics of a lender's performance and soft information factors in
inter-bank competition. The authors' empirical results suggest that
utilizing soft information allows banks to attain a more precise lending
decision.
The Financial Services Agency in Japan introduced an action program in
2003 that requires regional banks to shift from transaction banking to
relationship lending. Against that background, this book examines the
influence of relationship lending on a lender's performance. This study
found that relationship lending allows lenders to charge a higher
premium to counteract the high risk involved with SMEs. The book also
examines how relationship lending affects lending performance in
inter-bank competition. The conclusion is that, even though inter-bank
competition has negative effects, a bank in a competitive local market
can acquire an informational advantage to limit its own loss.
This book categorizes three soft information factors: organizational
systems, networks or alliances/partnerships, and business/management
leadership based on survey data. The authors' findings suggest that
information production, especially network and business/leadership
information, plays an essential role in promoting a bank's
profitability. These effects are strong even when banks face high
inter-bank competition. Relationship lending not only improves bankers'
lending techniques, but also fosters and enhances their community
knowledge and enables them to survive in a highly competitive market.
