What are the determinants of bank loan syndicates design in emerging markets economies (EME)? The syndicate design might be different in EME than in developed countries and can therefore have important implications for the functioning and the development of syndicated loan markets, and more broadly for the financial and economic development of EME.
As these economies are more fragile, a better knowledge of the determinants of bank loan syndicates provides timely policy recommendations on how to encourage the development of syndicated lending in these markets. This article is the first empirical research investigating the design of bank loan syndicates in EME using loan and country level variables for 10,930 loan facilities to borrowers from emerging markets over the 1990-2006 period.
Already in 1991, syndicated loans represented 67% of all emerging market corporate and sovereign borrowers' financing, twice the amount of total bond and equity financing (Altunbas et al., 2006). Furthermore, in the last decade the volume of syndicated loans in emerging markets has considerably grown from 91.8 billion USD in 1995 to 379.8 billion USD in 2005. During that period, the number of issues increased from 791 in 1995 to 1124 in 2005. Currently, syndicated loans represent an important source of external finance in emerging markets, comparable to bond markets and often larger than equity markets (Nini, 2004).
For instance, in 2005 syndicated lending corresponds to more than 11% of the private credit of financial institutions in Singapore, almost 23% in Mexico and close to 36% in the Russian Federation. In the third quarter of 20063, Asia (excluding Australasia) is the largest syndication market within the emerging economies. It has reached a total amount of 119.2 billion USD (4.3% of global market) and 549 issues. Middle East and Eastern Europe come as second, totaling 50.7 billion USD (1.8% of global market) and 45.2 billions USD respectively, with 59 and 148 issues. Finally, Central and South America has issued 70 deals for a total amount of 30.5 billion USD (1.1% of global market).
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The design of bank loan syndicates in Emerging Markets Economies
