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Saudi Arabian Commercial and Investment Banks Research Paper


Executive Summary

This paper seeks to establish a difference between investment and commercial banks. The literature on banks has mostly concentrated on the credit risk taken by banks, or encroachment into the functions of investment banks by commercial banks. However, no studies have attempted to understand what happens when an investment bank undertakes the traditional roles of a commercial bank, such as lending. This paper seeks to understand the difference between the products and lending habits of commercial and investment banks.

Qualitative and quantitative analysis tools are used to deconstruct the data. Data from five commercial and five investment banks are gathered and are examined using ANOVA and regression analysis. The result of the research shows that commercial banks have more product offerings than investment banks and that there exists a significant difference in risk-taking behavior of the two types of banks.

The research is restricted in scope as it leaves areas unattended. Lending propensity can be studied concerning other variables such as interest earnings, the interest charged on loans, duration of maturity of the loans, and so on.

Introduction

In 2006, the investment-banking arm of the Saudi Arabian banks split from the commercial banks. Capital Market Authority was set up to regulate the operations of the investment industry. In 2007, CMA approved the first investment bank, NCB Capital. The demand for capital loans from the expanding real estate sector and large infrastructure projects in Saudi Arabia was the driving force behind the expansion of the banking sector. Consumer lending in Saudi Arabia has shown robust growth since 2009 (“The Report: Saudi Arabia 2014” 84).

In 2013, a study on the banking sector conducted by AlJazira finance shows that there has been a growth in the sector even though the global economy and the macroeconomic environment were challenging. Lending in the Kingdom was believed to have grown and the average bank lending to the public and private sector showed a 16.7% year-on-year increase in 2013 (“The Report: Saudi Arabia 2014” 84). The report shows a growth prospect in the country in client lending because of the increase in the borrowing capacity of the people.

Further, lowering of an interest rate for a retail loan to increase penetration (interest rate is 12% in Saudi Arabia as compared to 19% in the UAE and 55% in Europe) has made the market more attractive to borrowers (“The Report: Saudi Arabia 2014” 84). The question that arises is which banking sector will drive the growth – commercial banks or the industrial banks. Some industrial banks, for example, the real estate investment companies, have shown a steady increase in the contribution in total consumer lending which, according to the IMF report, has increased by 25%. One reason for the growth in the consumer lending market is the rise in the local salaries and the expansion of consumer credit provides an extensive opportunity for Saudi banks to expand their loan books.

Most of the Saudi banks have provided strong growth rates indicating a rise in their loan books in 2015 (Spong par. 3). The report points out that most of the banks such as the National Commercial Bank, Samba Financial Group, Saudi Hollandi Bank, and Sabb have posted growth in their profit (Spong par. 2). The only bank that has shown an 11% decline in 2014 was Al Rajhi Bank (Spong par. 2). The report also suggests a decline in the expansion of the consumer lending market in the country in 2013. This is due to the bonus salary paid to the people and the slowdown of the infrastructure projects (Spong par. 7-8).

However, banks believe that government infrastructure projects are the main area where lending will grow. The growth in the consumer lending market raises inquiries regarding the structure of the market and the loan share of each kind of bank. Here, kinds of banks imply commercial and investment banks. In 2016, the Saudi banking sector has shown a continued growth lending market as institutional lending in the infrastructure sector requires $10 million from banks to finance their projects because of the fall in oil prices (Parasie par. 1). This shows an imminent boom in the lending market in the country. The banks operating domestically in the country expect to expand their lending.

Further, both commercial and investment banks are competing in the lending market in the country. This paper, therefore, tries to gain a better understanding of the intricacies of the Kingdom’s banking industry. It will compare and contrast the lending market for the banks that are segregated as commercial and investment banks.

The Saudi banking sector is divided into two distinct banking systems – commercial and investment banks. Both banks are engaged in the lending market in the Kingdom. Investment banks are those banks that operate in various areas such as retail businesses such as real estate lending and insurance trading. On the other hand, commercial banks are the ones that provide financial service to individuals and/or groups of clients.

To understand the mechanism of these sector’s operations, it is necessary to understand the difference between the two. A universal banking model is one wherein a commercial bank can pursue the functions of both the commercial and investment bank, while a separate banking system is one that makes a distinction between the two. In this case, the separation of roles occurs. However, in recent years, commercial banks have encroached into the traditional underwriting function of investment banks.

Thus, the entry of the commercial banks in the underwriting market has affected the prices of the bond issues, underwriting fees, etc. (Fang 2735) Invest market plays a critical role in the capital market to bridge the gap between firms looking for finance and investors eager to invest. Such intermediation function is important as it helps to reduce the transaction cost due to the investment banks’ specialization is sales and marketing of securities (Fang 2729).

This role is crucial as it creates symmetry between the firms and the investors. Investment banks are the best possible tools to reduce the asymmetry that plagues the capital finance market. Financial institutions can provide both banking and underwriting services to their clients because they enter into the investment bank’s arena (Drucker and Puri 2763). In recent years, it has been increasingly common for both commercial and investment banks to provide loans as well as underwrite for their customers.

This raises interesting questions regarding the lending services provided by the commercial and investment banks. Research states that concurrent underwriting and lending may be profitable to the financial institutions (Drucker and Puri 2764). First, concurrent transactions may ensure efficiency gains as the banks deliver a joint service to the customer, and second, costs of the service may be lowered due to informational economies (Drucker and Puri 2764).

Previous researchers have compared the scope, efficiency, and benefit of underwriting done by commercial and investment banks. However, no research, as to my knowledge, has presented a comparative study of the lending function of commercial and investment banks.

Further, no studies have tried to understand the lending market mechanism in Saudi Arabia, which is one of the booming lending markets as demand for credit in the country has increased even when the global economy faced a recession. This paper will compare the lending structure, practices of the commercial, and investment banks in Saudi Arabia. The paper aims to understand the nature of banking services provided by the banks, both commercial and investment, in the country and compare their consumer lending from 2010 to 2015.

Research Purpose or Problem

Traditionally, investment banks have operated in the capital market and acted a bridge between firms in search of capital and people in search of investment opportunities. However, when commercial banks entered this specialized area of the investment banks, they too started exploring avenues standard for the commercial banks. This is because many investment banks entered the consumer lending market.

When two players, previously operating in two distinct markets, suddenly compete with one another in a particular area is bound to create an interesting outcome for scholarly research. As investment banks started operating in the lending market, it directly competed with the commercial bank and fought for a part of the market. This created varying competition mechanisms in the commercial loan market. The reason being, investment, and commercial banks differ in many ways, a few primary ones being – fund sourcing, government regulations, relationship with the customers, economies of scope, and practice of accounting rules (Harjoto, Mullineaux, and Yi 51).

A few other noticeable differences are their products and customers. Investment banks cater to the capital finance market and they usually lend to businesses while commercial banks lend to both businesses and for personal purposes. The purpose of the paper is to set up a comparative study that will describe the differences in products of commercial and investment banks. Then the research will provide a comparative study of the loans granted by the banks (both investment and commercial) from 2010 to 2015.

Now the question that arises is why study these questions. Research indicates that “one-stop” lending and underwriting services when provided by banks ensure greater profitability to the financial institutions (Kanatas and Qi 1167). However, many critics believe that such universal banking structures where commercial and investment banks operate concurrently will hurt the financial market.

However, the banking industry leaders argue that an amalgamation of services in the baking industry will help the institutions to provide better services to their clients. Evidence from the market shows financial service integration has boosted the syndicated lending market in Saudi Arabia. Besides, despite government regulations, Saudi SMEs find it hard to borrow from the market and hence an integrated financial market will increase avenues for funding for small businesses. Further, with an increase in consumer borrowing in the country, changes in lifestyle choices, and so on, and the reason for borrowing money from banks has changed.

The Saudi Arabian Monetary Agency (SAMA) has recorded new avenues of lending based on the demand expectation of people. Thus, lending has become more reason-oriented such as education, home, automobile, traveling, durable, and healthcare. With the entry of foreign financial institutions in the country, the competition for capital financing had become immense. To face the challenges of globalization, in the financial market, integration was inevitable.

That is opening of the functions is necessary as has been found in the USA and Europe. However, whether this is a sound option of the consumer lending market or not is questionable. This question has not been addressed in any other research, to my knowledge, and hence provides a gap in the previous studies that need to be addressed. This area will further be examined in the literature review section of the paper.

Research Questions and Objectives

The present situation in the country’s financial market shows a rise in syndicated loans, which are actually a pool of money collected by different financial institutions for a particular client (Kassem par. 2). The market is supposed to show considerable opportunity for both commercial banks and investment banks in terms of lending. Further, the source of funding for commercial and investment banks varies.

Commercial banks have a reliable and stable source of funds. In Saudi Arabia, commercial banks can deposit a large amount of money in overseas banks and can divert those funds when the bank faced financial difficulties. However, investment banks mostly rely on their investment function to gather funds for lending. This establishes a difference in the prices of the products. However, it is unknown if the prices for lending differ for commercial and investment banks in Saudi Arabia.

Hence, an understanding of the lending function of both types of banks is essential. The paper aims to find out the difference in the product structure of the commercial and investment banks in Saudi Arabia and a comparison of the loans given by them from 2010 to 2015. The objective of the paper is to understand the overall banking system and structure in Saudi Arabia and then draw a comparison between commercial and investment banking products and lending. Further, the paper will also try to find out if the rise of syndicated lending has helped the banks or not.

The research questions that the paper raises are:

  1. What are the various products and services provided by commercial banks and investment banks in Saudi Arabia? How distinct are these products? Why do the products differ?
  2. Is there a difference in the annual loan amount lent by the commercial and investment banks operating in Saudi Arabia? What are the differences in the loan amount and characteristics?
  3. Is there a difference in the relation between an aggregate loan of the country and that of the banks for commercial and investment banks in Saudi Arabia?

Literature Review

Previous research has compared the underwriting function of commercial and investment banks. For example, Drucker and Puri have tried to understand the benefits of concurrent lending and underwriting for commercial and investment banks (2763). They point out that the entry of commercial banks into the underwriting market has increased the scope of the financial institutions to offer both underwriting and lending services (Drucker and Puri 2763).

Many of these banks serve the dual purpose of underwriting and providing loans to their clients. This is termed as concurrent lending (Drucker and Puri 2763). Drucker and Puri’s findings suggest that banks gain an advantage when dealing with concurrent lending (2764).

Their study into the benefits of concurrent lending shows that issuers actually benefit from these kinds of transactions and lower financial costs in two areas – first, underwriter fee is reduced, and second, “discounted yield spreads concurrent loans” (Drucker and Puri 2764). Their research suggests that concurrent lending is important for investment banks as this not only is beneficial for one-time transactions but also for future transactions as it forges a strong relationship between the financial institution and the client (2766). However, this research suggests that investment banks venturing into the lending functions have not received much academic attention (Drucker and Puri 2767).

Though the researches into underwriting by commercial banks have tested the plausibility of coexistence between commercial and investment banks little attention has been given to investment banks entering the lending function that was traditionally done by the commercial banks.

A study conducted by Kanatas and Qi showed that the universal banking system and the scope of economies such institutions have (1168). They show that a universal banking system, i.e. a system of banking where the functions of commercial and investment banks are not regulated and may overlap, helps to lower information costs resulting in a gain inefficiency. Kantas and Qi quote the vice chairman of J.P. Morgan to show that investment banks are in a better position to gather information about the customers: “… financial services providers are better able to access information about a customer’s total account relationship to offer products best suited to the customer’s needs” (1169).

Thus, when making a bank loan, investment banks already know their clients that they have gathered while proving underwriting services. Universal banks forego the information cost that commercial banks may incur to collect information about their clients. These information costs are a fixed cost that the investment banks sustain to maintain a relationship with the customers. Thus, once the universal bank gathers this information, it will not be incurred in further transactions with the client.

A study into the loan policies of commercial and investment banks for syndicated loans shows that there is a stark difference in the policies of the two institutions (Harjoto, Mullineaux, and Yi). Investment banks are new entrants in the commercial lending market, so they lend to less profitable more leveraged firms (Harjoto, Mullineaux, and Yi 59). The research findings suggest that investment banks give long-term loans while commercial banks are more prone to give short-term loans.

Evidently, investment banks are more inclined to transaction-oriented business. Investment banks create a higher spread of loans than commercial banks. However, when in a syndicated loan arrangement, this spread declines considerably (Harjoto, Mullineaux, and Yi 60).

Thus, credit spread based on the type of institution, shows that the pricing model of commercial and investment banks are the same. Further, on discounting the borrower-specific data, their research shows that investment banks charge less for borrower specific data than commercial banks (60). Further, the research shows that investment banks have higher loan rates. This is due to the lack of special funding sources of investment banks. Further, research suggests investment banks be less prone to credit risks than commercial banks as the former’s trading is based more on relationships (Harjoto, Mullineaux, and Yi 61).

Studies related to the lending practices of commercial and investment banks raise the question that what affects the pricing of banks (commercial, investment, or universal). A study conducted by Lepetit et al. investigated 602 European banks from 1996 to 2002 to understand the expansion of the services (or products) and its effect on loan pricing and interest margin (Lepetit et al. 2325). Their study shows that there are various linkages between the loan pricing and expansion of services of banks. The expansion of bank’s activity beyond deposit-taking and lending has facilitated in portfolio diversification and incentive approaches (Lepetit et al. 2325).

Their research is aimed at studying the implication of product diversification for banks in the European market. It showed that when there is a greater reliance on fee-based activities, lending rates are less. This results in the underpricing of the borrower default rate (Lepetit et al. 2331).

The term relationship lending has evolved with the prevalence of universal banks that provide the services of both a commercial and investment bank. Research has explored the relationship between corporate lending and loan contract and borrower characteristics (Elsas 33).

Relationship lending is defined as a “long-term implicit contract between a bank and its debtor” (Elsas 34). Since this is a long-term relationship, banks accumulate private information on the clients. This helps in forging a close tie between the client and the bank. The research findings show that in German universal bank’s payment transactions provide valuable personal information about the clients and bank monopoly power is an essential tool to determine relationship lending. Further, the higher the competition in the lending market, the lower is the tendency towards relationship lending (53).

Kashyap, Rajan, and Stein point out that how the traditional banking functions of depositing and lending are interlinked and complementary (65). The study posits that the main function of commercial banks is to provide liquidity to the borrowers on demand. However, when lending and deposits are viewed as similar products, the synergy of offering both of them becomes apparent (65). The paper points out that a mutual fund cannot give term loans (66). They believe that bank lending is essentially different from bank depositing function (Kashyap, Rajan, and Stein 67).

The study of the literature about the overlap of functions of commercial and investment banks suggests that lending, as a function has not been researched thoroughly by previous researches. Further, no study is available to establish a comparative relationship between the commercial bank and investment bank’s lending policies. From the literature review, a few of the areas that need to be understood related to the bank lending process are –

  1. source of funding,
  2. government regulations,
  3. product and services spread.

These factors are important to study in the case of commercial and investment banking lending functions because they help us to understand if there is a relation between the difference in any of the factors that might affect the interest rate or loan amount dispersed by the banks.

Financial sources are important to understand as they help to understand the nature of loans given and the interest rates taken on them. Commercial banks have a secure source of funding for their lending, which is derived from their clients’ deposits.

Deposits entail low-interest rates and are usually for a long period. They also entail low risk. The other side of the deposit as a source of the lending fund may entail certain costs such as regulatory cost that is imposed on banks by the local regulatory bodies such as the central bank to safeguard the people’s money. Thus, this may offset some of the interest-earning from lending. Investment banks, on the other hand, do not have access to customer deposits. However, some investment banks like Merrill Lynch and Morgan Stanley have chartered commercial banks to have stable access to deposits (Harjoto, Mullineaux, and Yi 51).

Also, commercial banks have subsidiaries of holding companies that help them to fund their lending activities, which investment banks lack. Further, large commercial banks have the advantage over investment banks in terms of subsidiaries of holding companies that serve as a source of funding. Thus, without access to deposits or capital funds, investment banks must fund their lending from returns from money and capital market. These sources are more prone to risk than deposits.

Local government regulations are stronger for commercial banks as they hold the deposits of the common people. Thus, ensuring the safety of the deposits is paramount for the regulators. Hence, commercial banks require their lenders to back up their loans with equity or other forms of security. As commercial banks cannot take high risks, due to regulations, their loans come with equity or other forms of insurances. However, investment banks are not subject to government regulations and therefore can offer lower interest rates for their lending. However, the effect of regulation on the lending rates of commercial and investment banks is not clear (Harjoto, Mullineaux, and Yi 52).

Economies of scope are an essential factor that influences the bank’s lending decisions. When a borrower purchases an additional product, the banks are in a better position to offer discounts on loans. This arises due to the economic scope of services. Kanatas and Qi point out that economies of scale can rationalize the lending and underwriting combination (1171). However, research has been unable to show a relationship between loan prices and concurrent lending. Ducker and Puri show that commercial banks use underwriting primarily as a tool to reuse the information about the clients for further business (Drucker and Puri 2769).

This can be an advantageous alliance for both the commercial and investment banks. Though many types of research have shown the effect of concurrent lending for commercial banks, no such research has been undertaken for investment banks. Besides, commercial banks are more likely to provide bundled products, though both the banks may have such services (Drucker and Puri 2769).

Product and services provided by the commercial and investment banks have a clear effect on the lending propensity and the interest rates charged. The literature on overwriting by commercial banks shows that when a bank overwrites and lends concurrently, it helps reduce its interest rate (Drucker and Puri 2771). Further, a diversified portfolio of products offered by the bank results in greater lending power and lower interest rates.

Moreover, if the other services or products are fee-based, this immediately reduces the interest charged on commercial loans. Hence, when banks engage in a diversified product mix fee-based product mix, it increases the revenue volatility, total leverage, and earnings (DeYoung and Roland 54). Thus, when the product portfolio of a bank is fee-intensive, it will reduce its reliance on loans on interest earnings and hence, can reduce the price of loans. Thus, the key to giving loans more competitively is to increase the portfolio of the bank’s service into fee-based products and services such as mutual fund sales, insurance, investment banking activities, etc.

The above literature review shows that commercial banks and investment banks traditionally operated in two separate markets, catering to different needs of the market. However, due to increased competition, stronger regulations, and volatile economic conditions, it has become necessary for the banks to venture into the other’s markets.

For instance, commercial banks have entered the investment banking arena of overwriting and investment banks entered the commercial lending market. Research suggests that both these banks, when encroaching into other’s areas of specialization, can coexist. Many types of research have concentrated on understanding the implications of the overwriting function of commercial banks (Drucker and Puri 2768), quality of overwriting (Fang 2732), and cases of concurrent overwriting and lending functions (Drucker and Puri 2770).

No research has shown any relation between combined or bundled products provided by investment banks on their loan pricing. Further, commercial banks usually provide a large combination of products and services, much more than the investment banks (Drucker and Puri 2769). Others have studied the lending functions of banks separately. However, no research to my knowledge compares the scope of lending practices of commercial and investment banks.

Also, all these studies have concentrated on the US or European banks. No research has been conducted on the banks in the Middle East or more specifically Saudi Arabia. Hence, there is a gap in research in this specific area. This paper aims to compare the lending function and the products of commercial and investment banks in Saudi Arabia.

After identifying the gaps in the previous literature, we come across three research questions. First, what are the basic differences in the products offered by commercial and investment banks? Second, do commercial banks provide more products than investment banks? Third, are regulations more for commercial fewer for investment banks, and does that affect the former’s lending capacity? These research questions are answered with the aid of qualitative data analysis gathered from secondary sources.

The literature review does not provide any comparative study between commercial and investment banks. Previous research has shown that commercial banks have been very successful in bundling their products with that provided by investment banks and that has increased their lending. In this paper, we will try to see which banking sector has provided more loans – commercial or investment. Further, the other question that arises is how the loans are priced. This paper will try to establish a relation between commercial lending, lending prices, and several financial products.

  • Hypothesis 1: Commercial banks provide more consumer loans than investment banks.
  • Hypothesis 2: There is an indirect relationship between the income of the firm and the risk taken by firms, but it has a positive relation to non-performing assets.
  • Hypothesis 3: Credit risk taken by the segment is directly related to the loan losses and aggregate loan growth of the country.

Research Methodology

To compare the lending, products of the commercial, and investment banks we undertake an understanding of secondary and primary research. First, we do secondary research to understand the methodological tools used in past researches for understanding lending trends and comparison tools used in banking academic researches. The qualitative research will entail an understanding of the commercial and industrial banking sectors, their operations, and the segments as a whole. This will help us to answer the first research question. The second section will entail studying primary sources, which are the websites and the financial reports from 2010 to 2015 of five commercial and five investment banks in Saudi Arabia.

Secondary Research

The research methodology followed for the analysis of loan comparison between commercial and investment banks, we use the methodology used by (Foos, Norden, and Weber. They provide a model of understanding loan growth and riskiness of individual banks. Loan growth (LG) is the total percentage change in one bank’s total consumer loan from year t-1 to year t (Foos, Norden and Weber 2932). Lending to other financial institutions is not included in the commercial loan segment. Further, a comparison between banks that have increased their total consumer loan to those who have reduced their consumer loans.

Further, the growth of the loans also depends on its competitors. Thus, we will try to find the abnormal growth rate (AGL) following Foos, Norden, and Weber. AGL is defined as the difference between loan growth and the growth rate of aggregate country’s loan (Foos, Norden, and Weber 2933). Thus, this is then compared within the five commercial banks and then, they are compared between segments i.e. commercial and investment banks. Loan to asset and loan to net income ratio is defined as the ratio of loan to total asset and the ratio of net income to the loan (Foos, Norden and Weber 2935).

Loan losses (LL) are defined as the relation between loan losses in period t to total customer loans in period t-1 (Foos, Norden and Weber 2933). Given these variables, a comparative regression analysis is done within the commercial bank segment and the investment bank segment. Then a comparison is done between the inter-segment banks.

Qualitative Research

The commercial banking sector in Saudi Arabia is one of the most dynamic sectors in the country’s economy. It plays a vital role in the dynamic development in the growth of the economy. The qualitative research is undertaken with the aid of data from newspapers, websites, and the Annual Report of the five commercial and five investment banks studied. Information related to product spread is obtained from the websites and annual reports.

This indicates the kind of products that the company offers and the price at which they are offered. This provides a thorough understanding of the spread of the product and the companies are presented to their degree of spread. The qualitative analysis will look at the regulations for commercial and investment banks in Saudi Arabia. Information on banking regulations may be obtained from the Saudi Arabian Monetary Agency (SAMA), news of banking regulations, and annual reports.

Once the information is obtained, a comparative analysis of the products for commercial and investment banks will be done along with the difference in the laws related to these two banking segments. This will assist us in understanding the difference in the products and regulations.

Experimentation

The research method adopted for the study shows a degree of experimentation, as it does not strictly follow any previous research in developing the comparative analysis of investment and commercial bank loans. The performance of loans given by investment and commercial banks is measured in terms of comparison of the loans and the number of products provided by the banks. Further, a comparison of the loans and the total deposits in the bank are measured.

The ratio between the loan and total assets gives the business risk (BR). The result is then regressed concerning the number of products offered by the bank and loan prices. Loan prices are determined the rate interest of the loans. A comparison of the loans and the regression analysis of the commercial and investment banks will provide a comprehensive understanding of factors that influence the loans for the two segments of banks.

Quantitative Research

Data for secondary research will be collected from various sources. As this research is based on previous years’ lending amounts by banks from 2010 to 2015, no primary data is required for the analysis. The data for this research are assembled from the annual reports of five commercial banks and five investment banks. The list of commercial banks and investment banks of Saudi Arabia is listed in table 2. We consider loans given by banks from 2010 to 2015.

The prices of the loans are derived from the annual reports for these years. This will divide the loans taking into account their maturity period. The maturity period is the number of days within which the consumer loans have to be repaid. The maturity period differs into five-period loans – within 3 months, 3 to 6 months, 1 to 5 years, more than 5 years, and no fixed period. Further, we compute the number of products that banks offer each year.

The effect of loan prices on the loan amount for each bank is computed. Regression analysis is done for commercial bank and investment banks separately factoring for loan prices and the number of products. This will provide a comprehensive comparison between loans given by consumer and investment banks.

Data Analysis

Qualitative Analysis

The banking industry in Saudi Arabia comprises of commercial banks and financial institutions that offer loans, savings deposits, mortgages, and other financial services. The market grew by 12.4%in 2014 and attained a value of $568.6 billion (MarketLine 8). The industry has posted a growth of 10.8% CAGR between 2010 and 2014 (MarketLine 7). According to S&P, a decline in oil prices will show its effect on the banking sector in 2016 and the percentage of bad loans may increase (MarketLine 7).

The lending segment of banks in the country has been very strong in 2014 and has posted total assets of $265.1 billion, which is almost 46.6% of the overall industry (MarketLine 7). The different segments of the banking industry of the country are bank credit, trading assets, cash assets, other assets, and inter-bank loans (MarketLine 9). The largest segment in the Saudi Arabian banking industry is bank credit that constitutes more than 45% of the market.

The trading assets segment comprises only 20% of the overall banking earnings. This shows that the lending sector of the banking industry is the most important segment and hence a more deep understanding of the various banking functions of the commercial and investment banks is necessary.

The annual report of SAMA shows that the major reasons for which loans are given are home and renovation, car and automobile, and others (SAMA 59). This does not include credit card loans. The loans are of three maturity period – short-term, medium-term, and long-term. Table 1 shows that the majority of loans given by banks – commercial and investment – are mostly short-term loans. In 2010, 59% of the loans given by banks were short-term loans, however the percentage share of this loan has declined, and in 2014 it was 50%. The lending market saw a marked increase in the long-term loan.

Table 1: Percentage of loans based on loan maturity. Source: (SAMA).

End of Period Short Term Medium Term Long Term
2010 59 16 25
2011 57 16 27
2012 54 20 26
2013 54 19 27
2014 50 19 31

Banks’ specific information is derived from their websites and annual report.

Table 2: The name of the banks, segregated by their type, and the number of products they offer.

Commercial Banks Number of Products
(Personal Banking for commercial banks)
Investment Banks Number of products
Saudi Hollandi Banks 30 (“Saudi Hollandi Bank”) Saudi Investment Bank 3 (brokerage, investment banking, and custody) (“The Saudi Investment Bank”)
Saudi British Bank 11 (“Saudi Arabia British Bank”) Albilad 5 (“Bank Albilad”)
Riyad Bank 4 (“Riyad Bank”) Samba Financial Group 8 (“Samba”)
National Commercial Bank 28 (“National Commercial Bank”) Banque Saudi Fransi 3 (Personal, Corporate, Investment) (“Banque Saudi Fransi”)
Bank AlJazira 19 (“Bank AlJazira”) Alinma Bank 4 (Ijarah, Murabaha, Musharaka, Bei Ajel ) (“Alina Bank”)

The qualitative comparison of the two segments of banks shows that commercial banks provide a larger array of products and services to the customers than the investment banks (see Table 1 above). However, a quantitative analysis of the data collected for the five commercial and investment banks will demonstrate how these banks differ and in what areas.

Quantitative Analysis

The data for the commercial and investment banks are shown in table 1 in the Appendix. The descriptive statistics presented in table 3 for a commercial bank’s average loans, deposits, and total assets’ data for five banks and the same for the investment banks are provided. The data for the banks computed from the financial reports of the banks are presented in the Appendix. Each variable such as loan, deposit, assets, non-performing loans, and net income are aggregated into two categories – commercial and investment bank.

For example, average commercial loan (CL) is computed by finding the mean of loans given by commercial banks for a particular period (for example period t). This is performed for commercial bank loans and investment bank loans from 2010 to 2015. This is again calculated for the other indices.

Table 3: Descriptive Statistics.

CL CA CD IL IA ID
Count 6 6 6 6 6 6
Mean 98,438.27 1,69,630.97 1,33,114.73 62,987.23 1,62,663.70 86,274.27
Mean LCL 76,745.79 1,35,997.72 1,11,203.38 47,648.29 29,720.57 59,048.36
Mean UCL 1,20,130.74 2,03,264.21 1,55,026.09 78,326.18 2,95,606.83 1,13,500.18
Standard Deviation 20,670.61 32,048.89 20,879.18 14,616.37 1,26,680.60 25,943.38
Mean Standard Error 8,438.74 13,083.90 8,523.89 5,967.11 51,717.14 10,591.34
Coefficient of Variation 0.20999 0.18893 0.15685 0.23205 0.77879 0.30071

To compare the loans of commercial and investment bank loans, we will compare the credit risk ratios. These ratios are loan to deposit ratio that is calculated by dividing the loan to deposits of the bank.

  • Hypothesis 1: commercial bank loans are significantly different from investment bank loans.

To understand, the loan data for all the commercial banks are compared to that of the investment banks from 2010 to 2015. ANOVA is done to understand if there is a perceived difference between the loans of commercial banks and that of industrial banks. We test the two variables – CL and IL. CL is consumer bank loans and IL is investment bank loans. Here, we do not aggregate the loan amounts. Rather, we use the raw statistics. The null hypothesis for this two-sample ANOVA was that the mean CL is equal to mean IL. The p-value for the ANOVA is 0.64 (>0.5). Hence, we cannot reject the null hypothesis and accept the hypothesis that there is a significant difference between commercial bank loans and that of investment banks.

However, when we address the same test to loan to deposit ratio that gives the risk of lending, we find a statistically significant result. The p-value of the ANOVA on loan to deposit ratio for commercial and investment banks is 0.25 (<0.5). Thus, we can accept the null hypothesis in this case i.e. the mean value of CLDR and ILDR are equal. Thus, we believe when the risk of lending money is concerned, which is measured by the loan to deposit ratio, there is a significant difference between the lending strategy of commercial and investment banks.

  • Hypothesis 2: There is a direct relationship between the income of the firm and the risk taken by firms, but it has a positive relation to non-performing assets.

We do a regression analysis to understand the risk spread of the commercial and the investment banks. The credit risk is computed by the loan to deposit ratio. This parameter is taken as the independent variable and we take net income, non-performing loans, aggregate loan growth (AGL), and loan losses (LL). When the regression is done for the consumer bank’s statistics, we get the following equation:

  • CLDR = 14.50703 + 0.00077 * CA + 0.0001 * CNPL – 0.02425 * CNI
    • Here, CLDR = consumer bank loan to deposit ratio
    • CA = consumer bank total asset
    • CNI = consumer bank net income
    • CNPL = consumer bank non performing loans

The regression shows (see Table 2 in the appendix) that the loan to deposit ratio has a statistically significant (at 0.5%) positive relation to total asset and non-performing loans. It has a negative relation with net income. The result is statistically significant as the p-level value is 0.26.

This is regression is done for the investment bank data, using investment bank’s total assets, net income, and non-performing finances. The regression analysis gives the following equation:

  • ILDR = – 175.91836 + 6.36879E-6 * IA + 0.09896 * INPL + 0.07491 * INI
    • Where ILDR = investment bank loan to deposit ratio
    • IA = investment bank total asset
    • INPL = investment bank non-performing loan
    • INI = investment bank net income

The regression analysis (see Table 3 in Appendix) for an investment bank loan to deposit ratio does not give statistically significant results. However, for individual intercepts, the p-value is less than 0.5, giving a significant relation between ILDR and the rest of the independent variables. Contrary to the regression results for CLDR, ILDR has a positive relation with investment bank net income. However, this has a high negative intercept.

We hypothesized that the higher the income of a firm higher will be the willingness to take risks. On the contrary, consumer banks tend to have an indirect relation between net income and loan to deposit ratio. This shows that when the net income grows, banks are less inclined to spread their credit risk. However, in the case of investment banks, the relation is positive, indicating a higher propensity of these bankers to spread their credit risk when their net income grows.

  • Hypothesis 3: Credit risk taken by each segment is directly related to the aggregate loan growth of the country.

CLDR is regressed to CAGL and ILDR is regressed concerning IAGL. The first regression is done on consumer bank loan to deposit ratio. The regression gives the following equation:

  • CLDR = 76.14153 + 1.59311 * CAGL
    • Where CLDR = consumer bank loan to deposit ratio
    • CAGL = consumer bank aggressive growth loan

The regression (see Table 6 in Appendix) gives a statically significant relationship between the two variables. This analysis shows that if there is an increase in CAGL then there will be a substantial increase in CLDR. Intuitively, when there is an increase in the ratio of the growth of bank loans to that of the country’s average loan growth, there will be an increase in the credit risk taken by commercial banks. Therefore, when the growth of the loan of the bank is relatively higher than the average growth of the country’s loan then there will be an increase in the loan given vis-à-vis deposits in the bank. Thus, banks will engage in greater risk. Further, the R-value is calculated to be 0.8 implying an 80% chance of the variables to act similarly in any other situation.

Similarly, when regression analysis is done on the investment bank LDR and AGL, the equation that we derive is ILDR = 75.59007 + 1.75169 * IAGL

  • Where ILDR = investment bank loan to deposit ratio
  • IAGL = investment bank aggressive growth loan ratio.

The overall regression is not statistically significant. However, the equation’s coefficient is statistically significant with a p-value lower than 0.5. The regression establishes a positive relation between ILDR and IAGL but the analysis is not statistically significant.

Research Findings or Results

The qualitative research shows that the number of products offered by commercial banks is larger than investment banks. This is significant for the study, as we have seen that commercial banks are more open to spread their risks. So intuitively, one can argue that because there is a substantial product spread, commercial banks can spread their credit risk. In other words, a larger number of products imply greater earnings from these services in the form of fees and commissions.

Thus, commercial banks then do not have to rely on their deposits to make loan commitments. This results in a greater loan to deposit ratio, as banks willingly take more credit risk as they have other means of building funds. However, this is not observed in the case of investment banks that do not offer many products. The number of products offered investment banks is limited below ten. One reason for this narrow product portfolio might be an investment bank’s tendency to concentrate on specialization.

However, these banks have a high-risk spread as they specialize in investment. Their portfolio is risk-taking and so are their ventures. We find support for this finding in research by Drucker and Puri who states “commercial banks are in a position to generate larger economies of scope than investment banks due to their well-established lending businesses” (2764).

The quantitative analysis consists of three parts. The first hypothesis stated a significant difference between a commercial bank and investment bank loans. This research has found no significant difference between commercial and investment bank’s loan amounts from 2010 to 2015. However, the research has found a significant difference in the credit risk taken by the two banking segments. Harjoto, Mullineaux, and Yi agree that there exists a change in the lending habits of commercial and investment banks because of the variance of the source of funding (Harjoto, Mullineaux, and Yi 54).

Kashyap, Rajan, and Stein point out as lending as a ratio of bank deposit show that amount of risk that banks are willing to take, a higher credit risk ratio will indicate a risk-taking bank (67). This research shows that there is a difference in risk-taking behavior in terms of lending between commercial and investment banks. However, no conclusive relation can be established between the amounts of loans given by the two types of banks.

The second hypothesis, a positive relationship between a bank’s income and credit risk-taking behavior, was found valid for commercial banks but not for investment banks. To appreciate this difference, one must look at the philosophy of the two types of banks. Commercial banks can increase their funds by collecting more deposits and lending it out to clients to accumulate interest earning. On the other hand, investment banks are also profit-motivated but they aim to provide finance and investment to other units.

Hence, they are ready to cater to high-risk behavior when it comes to lending, such that they can gain higher profits. But commercial banks are regulated by the central bank (SAMA in the case of Saudi Arabia) and cannot lend arbitrarily. Thus, their loans are generally less risky. That is why when a consumer bank’s credit risk (CLDR) is regressed against total assets, net income, and non-performing loans, they all showed a positive sign except for net income.

This showed that commercial banks were more inclined to increase their lending if their total asset increases. Further, a rise in the non-performing loan will increase its tendency to increase lending. On the other hand, the investment bank’s loan risk has a positive relation vis-à-vis the total asset and non-performing loans but shows a positive relation to net income. We hypothesized that the higher the income of a firm higher will be the willingness to take risks.

On the contrary, commercial banks tend to have an indirect relation between net income and loan to deposit ratio, negating our hypothesis. However, in the case of investment banks, the relation is positive, indicating a higher propensity to spread their credit risk when their net income grows. This follows the result findings of other researches that showed a positive relationship between income growth and a higher propensity to take risks (Harjoto, Mullineaux, and Yi 61).

The third hypothesis posits that when there is a growth in aggregate loan of the country, there will be an increase in the loan given out by the banks. To test this hypothesis, CLDR and ILDR were regressed for CAGL and IAGL, respectively. The regression analysis showed that there is a statically significant positive relation between commercial bank loan risks to the growth of aggressive loan growth. Though we found a positive relation, for the investment-banking loan to deposit ratio the result was not statistically conclusive.

Intuitively, it can be argued that when there is an increase in the ratio of bank loans to total loans in the country, there will be a tendency to push the growth of the future loans that are given. That is why we calculated AGL for the t-1 period and LDR for period t. This is significant at the present risk-taking propensity of the banks will depend on the previous period’s growth of aggregate loans. If there is higher growth, then it will boost lending in the present period and vice-versa.

Research Limitations

The research has certain limitations because it was carried out in a very short period. Given the scope of a longer time, this thesis can be expanded into various other areas that have not yet been tested in similar literature. Lending can be compared with interest earnings from loans that will give an idea as to how lending varies with changes in interest earnings. Further, due to the paucity of data, we could not establish a relation between lending and loan prices. These two aspects can be explored in future researches. Moreover, we could not look into the bundling of products by commercial and investment banks. This can be an area of research for future studies.

Conclusions, Implications, and Recommendations

The present research sheds considerable light on the commercial bank and investment bank loans and provides a comprehensive comparison between the two. With the increase in demand for loans in the Saudi Arabian market, this comparative study between commercial and investment banks shows that as these two banks are structured differently, offer different products, their propensity to take credit risk differs significantly.

The ANOVA analysis showed that there is an important difference in the credit risk-taking propensity of the two banks. Further, the study also shows how the lending habit of both the type of banks differs when related to net income, total asset, or non-performing loans. Moreover, the study shows that an increase in the loan of the country tends to push the growth of future loans that are given.

The implications of the research are immense. No studies have established the differences between commercial and investment bank lending. Further, no studies have concentrated on banks from Saudi Arabia or the Middle East. This study will be a resource for those who plan to further study the growing Saudi banking sector. This paper indicates the difference in the products that are offered and how they affect the lending decision of the banks.

Based on the current research, we recommend that banks can spread their risk based on the number of products that they offer. Further, the influence of the aggregate market must be taken into account when making lending decisions. Further, non-performing assets of the bank are a hindrance for banks and reduce their profitability. They must be kept under check as they tend to increase the risk-taking behavior of the banks, which may lead to a continuous spiral of the non-performing credit trap

Works Cited

Alina Bank. 2016. Web.

Bank Albilad. 2016. Web.

Bank AlJazira. 2016. Web.

Banque Saudi Fransi. 2016. Web.

DeYoung, Robert, and Karin P. Roland. “Product mix and earnings volatility at commercial banks: Evidence from a degree of total leverage model.” Journal of Financial Intermediation 10.1 (2001): 54-84. Print.

Drucker, Steven, and Manju Puri. “On the Benefits of Concurrent Lending and Underwriting.” The Journal of Finance 60.6 (2005): 2763-2799. Print.

Elsas, Ralf. “Empirical determinants of relationship lending.” Journal of Financial Intermediation 14.1 (2005): 32-57. Print.

Fang, Lily Hua. “Investment bank reputation and the price and quality of underwriting services.” The Journal of Finance 60.6 (2005): 2729-2761. Print.

Foos, Daniel, Lars Norden, and Martin Weber. “Loan Growth and Riskiness of Banks.” Journal of Banking & Finance 34.12 (2010): 2929-2940. Print.

Harjoto, Maretno, Donald J. Mullineaux, and Ha‐Chin Yi. “A comparison of syndicated loan pricing at investment and commercial banks.” Financial Management 35.4 (2006): 49-70. Print.

Kanatas, George, and Jianping Qi. “Integration of lending and underwriting: Implications of scope economies.” The Journal of Finance 58.3 (2003): 1167-1191. Print.

Kashyap, Anil K., Raghuram Rajan, and Jeremy C. Stein. “Banks as liquidity providers: An explanation for the coexistence of lending and deposit‐taking.” The Journal of Finance 57.1 (2002): 33-73. Print.

Kassem, Mahmoud. “Low liquidity leads to rise in syndicated loans.” 2015. The National. Web.

Lepetit, Laetitia, Emmanuelle Nys, Philippe Rous, and Amine Tarazi. “The expansion of services in European banking: Implications for loan pricing and interest margins.” Journal of Banking & Finance 32.11 (2008): 2325-2335. Print.

“Banks in Saudi Arabia.” MarketLine (2015): n.pag. EBSCO. Web.

National Commercial Bank. 2016. Web.

Parasie, Nicolas. “Saudi Arabia Set to Secure $10 Billion Loan to Address Budget Shortfall.” 2016. The Wall Street Journal. Web.

Riyad Bank. 2016. Web.

SAMA. “Fifty First Annual Report.” 2015. Saudi Arabian Monetary Agency. Web.

Samba. 2016. Web.

Saudi Arabia British Bank. 2016. Web.

Saudi Hollandi Bank. 2016. Web.

Spong, Rebecca. “Saudi banks post strong results.” 2015. Middle East Business Intelligence. Web.

The Report: Saudi Arabia 2014. Duabi: Oxford Busienss Group, 2014. Print.

The Saudi Investment Bank. 2016. Web.

Appendix

Table 1: Loan statistics data Financial Reports of the Banks for years 2010 to 2015

Commercial Banks

Saudi Hollandi Bank (SHB)

SAR million 2010 2011 2012 2013 2014 2015
Loans 53652 37410 45276 53652 65148 76144
Total Assets 53882 57197 68506 80468 96619 1,08,070
Deposits 41604 44689 53914 61875 76,814 88,832
Due to Banks 2494 1475 1611 2857 3055 1357
NPL 931 735 722 739 364 534
NPL% 2.6 1.9 1.6 1.3 5.6 7
Loan to deposit Ratio (%) 129.0 83.7 84.0 86.7 84.8 85.7
Net Income 1252.0 1501.0 1820.0 2022.0
Loan to Asset (%) 99.6 65.4 66.1 66.7 67.4 70.5

Saudi British Bank (SBB)

SAR million 2010 2011 2012 2013 2014 2015
Loans 74248 84811 96,098 1,06,115 1,15,221 1,25,424
Total Assets 125372 138657 1,56,652 1,77,302 1,87,609 1,87,750
Deposits 94673 105577 1,53,138 1,51,135 1,44,244 1,24,939
Due to Banks 4661 5894 1,874 4,164 3,879 6,072
NPL 2614 16678 1,598 1,525 1,494 1,517
NPL% 3.5 19.7 1.7 1.4 1.3 1.2
Loan to deposit Ratio (%) 78.4 80.3 62.8 70.2 79.9 100.4
Net Income 1883 2888 3240.0 3773.0 4266.0 4330.0
Loan to Asset (%) 59.2 61.2 61.3 59.8 61.4 66.8

Riyad Bank (RB)

SAR million 2010 2011 2012 2013 2014 2015
Loans 106035 112973 1,17,471 1,31,191 1,33,490 1,44,674
Total Assets 173556 180887 1,90,181 2,05,246 2,23,316 2,23,316
Deposits 126945 139823 1,46,215 1,53,200 1,64,079 1,67,090
Due to Banks 4688 6085 6,163 7,578 3,790 4,496
NPL 1813 1,879 2,037 1,264 1,041 1,321
NPL% 1.7 1.7 1.7 1.0 0.8 0.9
Loan to deposit Ratio (%) 83.5 80.8 80.3 85.6 81.4 86.6
Net Income 2825 3149 3,466 3,947 4352 4049
Loan to Asset (%) 61.1 62.5 61.8 63.9 59.8 64.8

National Commercial Bank (NCB)

SAR million 2010 2011 2012 2013 2014 2015
Loans 125597 135289 163461 187687 220722 251351
Total Assets 282371 301198 345249 377280 434878 449340
Deposits 229160 239458 273530 300602 333095 323282
Due to Banks 14332 19940 25574 24715 35449 47719
NPL 5162 4271 4932 2919 2851 3681
NPL% 4.1 3.2 3.0 1.6 1.3 1.5
Loan to deposit Ratio (%) 54.8 56.5 59.8 62.4 66.3 77.7
Net Income 6,613 7,988 8793 9148
Loan to Asset (%) 44.5 44.9 47.3 49.7 50.8 55.9

Bank AlJazira (BAJ)

SAR million 2010 2011 2012 2013 2014 2015
Loans 18704 23307 29,896 34,994 41,244 41,863
Total Assets 33018 38898 50,956 59,976 66,553 63,264
Deposits 27344 31159 41,675 49,082 55,596 50,673
Due to Banks 389 1305 3,286 4,359 3,736 4,054
NPL 1330 1031 1,040 429 369 355
NPL% 7.1 4.4 3.5 1.2 0.9 0.8
Loan to deposit Ratio (%) 68.4 74.8 71.7 71.3 74.2 82.6
Net Income 285 302 500.0 650.0 572.0 1287.0
Loan to Asset (%) 56.6 59.9 58.7 58.3 62.0 66.2

Investment Banks

Saudi Investment Bank (SAIB)

SAR million 2010 2011 2012 2013 2014 2015
Loans 31001 27114 34050 47566 57472 60024
Total Assets 51941 51945 59066 80495 93626 93633
Deposits 37215 36770 40413 57043 7033 70328
Due to Banks 4896 4224 6269 9828 5002 5321
NPL 1791 1802 450 395 436 447
NPL% 5.8 6.6 1.3 0.8 0.8 0.7
Loan to deposit Ratio (%) 83.3 73.7 84.3 83.4 817.2 85.3
Net Income 439.0 711.0 912 1286 1436 1328
Loan to Asset (%) 59.7 52.2 57.6 59.1 61.4 64.1

Samba Financial Group (Samba)

SAR million 2010 2011 2012 2013 2014 2015
Loans 80,251 89,111 104786 113455 124079 129818
Total Assets 18,74,156 192774 199244 205036 217398 235243
Deposits 1,33,462 1,37,256 148736 158337 163794 171395
Due to Banks 19,800 20,628 11956 7473 9385 19191
NPL 3,138 2,764 1899 1921 1659 1113
NPL% 3.9 3.1 1.8 1.7 1.3 0.9
Loan to deposit Ratio (%) 60.1 64.9 70.5 71.7 75.8 75.7
Net Income 4,432 4,304 4332 4510 5010 5214
Loan to Asset (%) 4.3 46.2 52.6 55.3 57.1 55.2

Banque Saudi Fransi

SAR million 2010 2011 2012 2013 2014 2015
Loans 80,976 92,325 102785 111306 116540 123442
Total Assets 1,23,218 140479 157777 170056 188776 183724
Deposits 93,529 1,09,963 115571 131601 145275 141751
Due to Banks 2,312 2,063 14570 10797 12994 8270
NPL 1,015 1,128 1045 1517 1182 1129
NPL% 1.3 1.2 1.0 1.4 1.0 0.9
Loan to deposit Ratio (%) 86.6 84.0 88.9 84.6 80.2 87.1
Net Income 2910 2801 3015 2405 3516 4036
Loan to Asset (%) 65.7 65.7 65.1 65.5 61.7 67.2

Albilad

SAR million 2010 2011 2012 2013 2014 2015
Loans 12290 13779 18255 23415 28355 34254
Total Assets 21117 27727 29777 36323 45229 51220
Deposits 16932 23038 23742 29108 36723 42179
Due to Banks 382 422 570 975 1191 1421
NPL 708 685 752 460 430 514
NPL% 0.06 0.05 0.04 0.02 0.02 0.02
Loan to deposit Ratio (%) 72.6 59.8 76.9 80.4 77.2 81.2
Net Income 92 329 941 729 864 788
Loan to Asset (%) 58.2 49.7 61.3 64.5 62.7 66.9

Alinma Bank

SAR million 2010 2011 2012 2013 2014 2015
Loans 15,593 25,258 37187 44924 53636 56570
Total Assets 26,548 36,783 54014 63001 80861 88724
Deposits 8,315 17,776 323213 42762 59427 65541
Due to Banks 2,254 2,442 2414 201 32 2263
NPL 0 10 122 302 350 405
NPL% 0.0 0.0 0.3 0.7 0.7 0.7
Loan to deposit Ratio (%) 187.5 142.1 11.5 105.1 90.3 86.3
Net Income 15 431 733 1004 1264 1469
Loan to Asset (%) 58.7 68.7 68.8 71.3 66.3 63.8

Table 2: Regression of CLDR with respect to CA, CNPL, and CNI.

ANOVA
d.f. SS MS F p-level
Regression 3 141.50277 47.16759 2.76233 0.27696
Residual 2 34.15056 17.07528
Total 5 175.65333
Coefficient Standard Error LCL UCL t Stat p-level H0 (5%)
Intercept 14.50703 24.62122 -91.4295 120.44357 0.58921 0.61541 accepted
CA 0.00077 0.00033 -0.00064 0.00217 2.34479 0.14369 accepted
CNPL 0.0001 0.00213 -0.00906 0.00926 0.04667 0.96702 accepted
CNI -0.02425 0.01246 -0.07785 0.02935 -1.94692 0.19092 accepted

Table 3: regression analysis of investment bank’s loan to deposit ratio.

ANOVA
d.f. SS MS F p-level
Regression 3 732.23439 244.07813 0.93499 0.55398
Residual 2 522.0965 261.04825
Total 5 1,254.33
Coefficient Standard Error LCL UCL t Stat p-level H0 (5%)
Intercept -175.91836 158.07126 -856.04409 504.20737 -1.11291 0.38158 accepted
IA 6.37E-06 0.00007 -0.0003 0.00031 0.0903 0.93628 accepted
INPL 0.09896 0.07347 -0.21717 0.41509 1.34692 0.31033 accepted
INI 0.07491 0.0454 -0.12043 0.27025 1.64993 0.24074 accepted
T (5%) 4.30265
LCL – Lower value of a reliable interval (LCL)
UCL – Upper value of a reliable interval (UCL)

Table 4: ANOVA analysis of the loans of two segments.

Analysis of Variance (One-Way)

Summary
Groups Sample size Sum Mean Variance
CBL 30 20,79,569 69,318.97 4,66,98,63,849.96
IBL 30 18,89,617 62,987.23 1,51,36,88,135.97
ANOVA
Source of Variation SS df MS F p-level F crit
Between Groups 60,13,62,705.00 1 60,13,62,705 0.1945 0.66083 4.00687
Within Groups 1.79E+11 58 3,09,17,75,993
Total 1.80E+11 59

Table 5: ANOVA analysis of LDR of two segments.

Analysis of Variance (One-Way)

Summary
Groups Sample size Sum Mean Variance
CLDR 30 2,344.60 78.15333 199.10395
ILDR 30 3,228.20 107.60667 18,727.62
ANOVA
Source of Variation SS df MS F p-level F crit
Between Groups 13,012.48 1 13,012.48 1.37504 0.24574 4.00687
Within Groups 5,48,874.95 58 9,463.36
Total 5,61,887.44 59

Table 6: Regression analysis of CLDR with CAGL.

Regression Statistics

R 0.80894
R-square 0.65439
Adjusted R-square 0.53919
S 4.48939
N 5
ANOVA
d.f. SS MS F p-level
Regression 1 114.48406 114.48406 5.68028 0.09732
Residual 3 60.46394 20.15465
Total 4 174.948
Coefficient Standard Error LCL UCL t Stat p-level H0 (5%)
Intercept 76.14153 2.25016 68.9805 83.30255 33.83822 0.00006 rejected
CAGL 1.59311 0.66844 -0.53416 3.72038 2.38333 0.09732 accepted
T (5%) 3.18245
LCL – Lower value of a reliable interval (LCL)
UCL – Upper value of a reliable interval (UCL)

Table 7: Regression analysis of ILDR with IAGL.

Regression Statistics

R 0.21868
R-square 0.04782
Adjusted R-square -0.26957
S 19.94439
N 5
d.f. SS MS F p-level
Regression 1 59.93231 59.93231 0.15067 0.7238
Residual 3 1,193.34 397.77856
Total 4 1,253.27
Coefficient Standard Error LCL UCL t Stat p-level H0 (5%)
Intercept 75.59007 8.92123 47.19874 103.98139 8.47306 0.00345 rejected
IAGL 1.75169 4.51281 -12.6101 16.11347 0.38816 0.7238 accepted
T (5%) 3.18245
LCL – Lower value of a reliable interval (LCL)
UCL – Upper value of a reliable interval (UCL)
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