The rationale of bank lending in pre-crisis Thailand

A data set of 560 credit files from Thai commercial banks is compiled. The loans granted between 1992 and 1996 follow a pattern known from mature markets as a similar set of variables explains much of the variance in interest rate spread. A second finding is the expected higher importance of relationship banking. Third, risk is controlled via credit availability and not via pricing. Fourth, the ex post information about riskiness reveals that banks could have made better use of available information. Overall, the problem was not excessive lending to firms with which the lenders had close relationships, but rather one of fully recognizing the risk factors.