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Relationship Banking: The Borrower's Incentives Channel

Author

Listed:
  • Pejman Abedifar
  • Soroush Kamyab
  • Steven Ongena
  • Amine Tarazi

    (UNILIM - Université de Limoges, LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges)

Abstract

We contribute to the relationship banking literature by uncovering the impact of a prior banking relationship on borrower's incentives to avoid default. As an identification strategy we exploit a proprietary dataset comprising 149,230 mortgage loans tracked monthly over a two-year period in a unique institutional setting that allows us to isolate the influence of borrower's incentives. Our findings indicate that a pre-existing relationship diminishes borrower's default risk by approximately 4%, exclusively attributable to the value of the relationship for the borrowers. This effect persists even during the notable surge in loan defaults during the COVID-19 pandemic. Our results also show that the impact of pre-existing banking relationships on avoiding default is stronger for wealthier, more religious, and male borrowers.

Suggested Citation

  • Pejman Abedifar & Soroush Kamyab & Steven Ongena & Amine Tarazi, 2025. "Relationship Banking: The Borrower's Incentives Channel," Working Papers hal-04793051, HAL.
    • Handle: RePEc:hal:wpaper:hal-04793051
    Note: View the original document on HAL open archive server: https://hal.science/hal-04793051v2
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