RIEB Discussion Paper Series No.2025-02

Title

Identification of Relationship Lending in Bank-Borrower Networks

Abstract

Relationship lending refers to lending a close relationship between a bank and a borrower, which is expected to help reduce borrowing costs. However, the extent to which they are used is unclear. This measurement difficulty makes it challenging to evaluate its benefits accurately. This paper proposes a novel empirical framework to identify relationship lending in transaction data between banks and borrowers in a more objective manner by determining the set of significant ties from an ensemble of undirected and unweighted bipartite networks. Using the detected relationship lending between banks and borrowers, we estimate the magnitude of additional lending volumes based on relationship lending. From the financial data in Japan from 1977 to 2021, the usage of relationship lending is estimated to be over 50% throughout the sample period but has varied considerably over time. We find that the volume of relationship lending is 34% larger than that of transactional lending. Although the relative volume of relationship lending against transaction lending has been declining, the importance of relationship lending remains substantial in obtaining a larger volume of lending.

Keywords

Relationship lending; Bank-borrower networks; Significant ties

JEL Classification

C81, G12, G21, L14

Inquiries

Yoshitaka OGISU
Faculty of Economics, Konan University
Junior Research Fellow, Research Institute for Economics and Business Administration (RIEB), Kobe University

Shoka HAYAKI
Faculty of Economics, Kagawa University
Research Institute for Economics and Business Administration (RIEB)
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059

Masahiko SHIBAMOTO
Research Institute for Economics and Business Administration (RIEB)
Center for Computational Social Science (CCSS)