The Effect Of The Geographical Expansion Of Small And Medium-sized Banks On Corporate Loans And The Risk Of The Regional Banking Sector

Small and medium-sized commercial banks are an important part of China’s banking system,and their market share is increasing year by year.By the end of2018,the ratio of total assets of small and medium-sized commercial banks to the total assets of large state-owned commercial banks had reached 0.825: 1.At the same time,small and medium-sized commercial banks play an important role in corporate financing.By the end of 2018,the ratio of claims of small and mediumsized commercial banks to non-financial enterprises and claims of large state-owned commercial banks to non-financial enterprises had reached 1: 1.316.The increasing market influence of small and medium-sized commercial banks is closely related to their geographical expansion process.Specifically,since 2006,the regulatory authorities have gradually relaxed the market access conditions for joint-stock commercial banks and city commercial banks through the implementation of a series of policies.Under this policy background,small and medium-sized commercial banks have ushered in a relatively large-scale geographical expansion process.By the end of 2011,small and medium-sized commercial banks had set up more than 6,000 non-local sub-branches.In prefecturelevel cities,the proportion of sub-branches of out-of-town small and medium-sized commercial banks increased from 3.5% in 2006 to 9.2% in 2011.Since then,there has been a major shift in market access policies for small and medium-sized commercial banks,especially for city commercial banks,whose intra-province expansion and inter-province expansion have once fallen into "stagnation".At present,the geographical expansion of small and medium-sized commercial banks has entered a relatively stable stage.Although the expansion is significantly smaller than the pre-2011 expansion,it is continuing.Given the scale and scope of the geographical expansion of small and mediumsized commercial banks,it is likely to have a significant impact on the banking sector and real businesses.However,there is a lack of systematic and in-depth theoretical and empirical research.This paper will conduct in-depth research on three issues related to the geographical expansion of small and medium-sized commercial banks.First,when a number of small and medium-sized commercial banks enter a region through geographical expansion,do they improve the financing of enterprises in the region,especially the financing of small and medium-sized enterprises(SME)? But so far,there is little literature to answer this question based on sufficient empirical research.Second,when a number of small and medium-sized commercial banks enter a region through geographical expansion,do banks in the region change their "screening" of borrowers,thereby affecting their loan portfolios and the risk level of their loan portfolios? Third,when a number of small and medium-sized commercial banks enter a region through geographical expansion,does it push up the overall credit risk of the regional banking sector? While much of the literature examines the impact of an individual bank’s geographical expansion on its own risk,little research has focused on the impact of multiple banks entering a region through geographical expansion on the overall credit risk of the banking sector within the region.This paper attempts to answer the above three questions.The research in this paper is divided into seven chapters.Chapter 1 describes the main issues to be studied,the research methods,and the contributions of this research.Chapter 2reviews several branches of literature related to the research topics.Chapter 3describes the institutional background.In Chapter 4,this paper uses data from industrial enterprises of the National Bureau of Statistics to analyze the impact of the geographical expansion of small and medium-sized commercial banks on corporate loans.The study finds that for enterprises in a region,the entry of small and medium-sized commercial banks from other regions promotes their loan availability and loan scale on average.However,the heterogeneity analysis shows that the positive impact of the entry on the loan scale of local enterprises is more obvious in large enterprises,state-owned enterprises and industries with higher dependence on external financing.This means that although the geographical expansion of small and medium-sized commercial banks helps corporate financing as a whole,and especially in industries with high external financing dependence,it does not significantly improve SME loans.In Chapter 5,based on the bank loan data of A-share listed companies,this paper examines whether the entry of small and medium-sized commercial banks from other regions has caused banks in the region to change their screening behavior,thereby affecting the risk level of their loan portfolios.It is found that the entry will prompt banks in the region to improve the accuracy of screening-reducing the probability of borrowers with higher default risk obtaining loans,and increasing the probability of borrowers with lower default risk obtaining loans-thereby reducing the risk level of loan portfolios.Banks increase information production in the process of screening enterprises,which is a key mechanism.Banks increase information production in the screening of enterprises,and actively collect and mine more information that is helpful for making credit decisions,which can make their own judgment of enterprise default risk more accurate,reduce the incidence of wrong judgment,and ultimately improve the accuracy of screening.The heterogeneity analysis shows that the impact of the entry of small and medium-sized commercial banks from other regions on the screening behavior of the banks in the region is more obvious in private enterprises,industries with high risk of debt default,and regions with large credit market capacity.In Chapter 6,based on the city-level data of banking credit risk,this paper analyzes the impact of the geographical expansion of small and medium-sized commercial banks on the overall credit risk of the regional banking sector.It is found that for a region,the entry of small and medium-sized commercial banks from other regions will reduce the overall credit risk of the regional banking sector.After a series of robustness tests,this conclusion still holds.The heterogeneity analysis shows that the negative impact of the entry on the credit risk of the regional banking sector is more obvious in regions with a lower initial development level of the banking sector and regions with a higher initial level of competition in the banking sector.Chapter 7 presents concluding thoughts.This paper contributes to the literature in the following ways.First,this paper enriches the literature in the field of bank geographical expansion.On the one hand,although a large body of literature examines the changes in the investment,innovation and growth of enterprises after obtaining loans under the background of bank geographical expansion,there is a lack of attention to the enterprise loans themselves under the background of bank geographical expansion,especially the difficulty of obtaining loans,loan scale,and the distribution characteristics of loans among different enterprises.This study can compensate for this shortcoming.On the other hand,a large body of literature examines the impact of an individual bank’s geographical expansion on its own risk,but rarely analyzes the effect of multiple banks entering a region on the overall risk level of the regional banking sector.This study can supply a supplement to the relevant literature.Second,although some studies directly examines the impact of bank geographical expansion on corporate loans,it mainly uses region-level loan data for empirical analysis,which weakens the identification effectiveness.This paper uses micro-level corporate loan data to compensate for this deficiency to some extent.In addition,previous empirical studies mainly indirectly infer the impact of competition on bank screening behavior through changes in loan quality,while this paper can directly identify the impact of competition on bank screening behavior by examining the changes in loan availability of high-risk and low-risk enterprises after the entry of banks from other regions.Third,the findings of this paper help to improve the understanding of the geographical expansion of small and medium-sized commercial banks.This paper finds that,on the one hand,deregulating market access and encouraging small and medium-sized commercial banks to expand geographically cannot play a role in promoting SME loans.On the other hand,the geographical expansion of small and medium-sized commercial banks has a reducing effect on the overall credit risk of the regional banking sector.Therefore,allowing small and medium-sized commercial banks to expand moderately geographically is at least positive for controlling the credit risk of the regional banking sector.