Study Shows How Banks Profit From Rel. Lending
WASHINGTON-Market valuations of smaller, publicly held banks are higher than they would otherwise be due to their investment in relationship-lending, according to a study issued recently by the Office of Advocacy of the U.S. Small Business Administration.
The study examined the link between market valuation and small business lending for 817 publicly held banking organizations during the period 1994 through 2005.
"This study shows that for smaller banks it is worth the time and effort to invest in relationship lending," said Dr. Chad Moutray, chief economist for the Office of Advocacy. "The market values the added profit that comes from personally knowing small business customers, and being able to offer them loans and services not obtainable from other banking organizations."
Many times, small firms have little or no collateral, and younger firms do not have a credit history on which to base banking decisions.
These firms may be excluded from "transactional" financing decisions that require credit scoring and other analysis of hard data used to evaluate the credit worthiness of the business and its owner, the study said.
On the other hand, "relationship" lending relies on the formation of bank-firm relations, and requires an investment by the bank in costly information acquisition and processing as well as the monitoring of firm activities. Such investments result in somewhat higher fees and interest rates for the small business customer to offset the cost of these banking activities.
The study, titled: "The Value to Banks of Small Business Lending," was written by Dr. Joe Peek with funding from the Office of Advocacy. It concludes, "Small business lending is a profitable market niche for small publicly traded banking organizations...The evidence is consistent with these banks having a comparative advantage in originating and monitoring small business loans compared to larger banking organizations."
The Office of Advocacy, which bills itself as the "small business watchdog" of the federal government, examines the role and status of small business in the economy.
For info: www.sba.gov/advo.
Women Increasingly Use Debit Cards For Finances
PURCHASE, N.Y.-A growing number of women use debit cards to manage personal and family finances, according to the results of the "Women in the Financial Marketplace" analysis, part of the Yankelovich MONITOR 2006/07 study.
The study, commissioned by MasterCard Worldwide, found debit card usage by women has more than doubled since 2003, growing from 20% to 43%.
The research revealed 77% of women surveyed younger than 55-years old have primary or shared fiscal decision-making responsibilities.
Further, 85% of women indicated they are increasingly using their debit card to help manage personal finances.
The results also show women are more likely than men to feel the pressures of home, family and finances.
"We found that with their added responsibilities, women today are time starved and looking for financial management solutions that can simplify their lives and free up more time. In fact, the average woman is cramming 38 hours into a 24-hour day," Patricia Preston, group head, debit product management-Americas, MasterCard Worldwide said in a press release. "And, women now represent 61% of the most frequent debit card users, relying on debit for the purchasing flexibility and management it affords."
A recent MasterCard lifestyle survey found fewer women find time to treat themselves. A study of 1,000 women 24 to 45 years old found 60% of women pamper themselves only once every three months or less. The study also found 34% do not put money aside while 53% allocate less than $25 per month to treat themselves.
When women do treat themselves they use their debit card to pay almost half of the time (47%).
The "Women in the Financial Marketplace" analysis is part of the Yankelovich MONITOR 2006/2007 report.
The study was conducted in 2006 and included in-person, phone and Web interviews with 4,110 adults, of which 1,481 were women under 55.
For info: www.mastercard.com.
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