Do loan officers get soft by the month-end? : lending inefficiency and the end-of-month effect : the portuguese case

• Autor(a) principal: Alves, Bruno Miguel Coelho
• Data de Publicação: 2019
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.14/26877
• topic: End-of-month effect; Loan officers; Credit lines; Risk taking; Efeito de fim de mês; Gestores de crédito; Linhas de crédito; Tomada de risco; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

In this dissertation, we study the monthly distribution of all loans granted to Portuguese non-financial companies, between 2013 and 2016. We find a strong evidence of an end-of-month effect: 38% of all loans were granted in the last three days of the month. We isolate this effect and conclude that it is derived from credit lines, with a default rate 4.5x times higher than similar credit lines granted on the remaining days of the month. We find a reversal pattern on the 15th of each month, which we justify as a possible window dressing strategy from Portuguese banks – they have to report their loans’ portfolio by this time of the month. Our results are robust to both the number of operations initiated (extensive margin) and the average loan amount (intensive margin). We perform a back-of-the-envelope computation and compute an increase in potential future credit losses of €3.2 billion as a consequence of the end-of-month relaxation in loan officers’ standards. Our dissertation contributes to the field of end-of-month performance misalignments in a banking context, but takes a step forward: prior studies consider this event a consequence of variable compensation based on loan volume. In our context, we are able to split between banks that reward loan officers based on volume-granted and the ones that do not: the end-of-month effect is common to both.