I am writing a paper on the financial stability of the banking sector. One factor im looking at is the amount of new loans or credit issued (credit growth). I have two different total loan measures. One measures the total loans by their utilisation while the other measures them by the credit lines spoken. Which measure would be more appropriate when regarding the financial stability of the banking sector? Im tending towards using the total credit lines which have been spoken.
Measuring the total loans by their utilization rate is more effective in determining the financial stability of the banking sector. These 'utilized' loans are IN EFFECT, aka, in use and simultaneously have a risk factor. Un-drawn data is not that useful because it might never be drawn and therefore pointless when determining stability measures.
My reason for saying this stems from the hard data perspective. You have hard, real data when measuring the total loans by their utilization rate. You have theoretical(not hard data, and there-fore theoretical risk factor) utilization rates when it comes to "spoken" credit lines available but not necessarily drawn.
Hope this helps.