HOW BANK LOANS ARE PRICED: A COMPARATIVE STUDY BETWEEN ASIA AND WESTERN EUROPE

Syndicated loan volume has grown tremendously not only domestically but also internationally. This empirical study compares loan pricing between two important segments of the global financial market, Asia and Europe, using pooled GLS regression analysis on data of 3,425 service loans over the 17-year period from 1990 to 2006. On average, loan spread in Asia are narrower. although loan fees are larger. All-in-spreads (the sum of loan spread and loan fees) are comparable, so lenders may earn income competitively across continents, but Asian lenders favor more upfront fees over a continuous stream of interest income Information asymmetry and agency cost are common factors on both continents, although the degree-of-information problem varies. The proportion of' secured loans is higher in Asia. a fact which may be a manifestation of borrowers' credit risk. Interestingly. European loans are more heavily used to finance higher levels of moral hazard, i.e., severe events such as leverage buyouts (LBO).