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.

  • $\begingroup$ By “spoken” do you mean the credit lines available but not necessarily drawn? $\endgroup$ May 6 '19 at 14:23
  • $\begingroup$ Yes exactly that is the difference between utilisation and credit lines data $\endgroup$
    – Elias K.
    May 6 '19 at 14:34

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.

  • $\begingroup$ Yes this makes sense I guess. I was thinking that it might be interesting to see if the discrepancy between the two has increased over the last years. Furthermore, what I think is neglected when looking at utilisation is that banks might be speaking a lot more credit than is actually being used, which would be inefficient as well and affect stability as well. $\endgroup$
    – Elias K.
    May 6 '19 at 18:12
  • $\begingroup$ That makes sense, I can definitely see how if a bank expects to loan X amount out and receive Y profit for it, but end up falling short on loaning X amount out, it could effect the stability. In many ways I can see these 2 factors having near the same results. $\endgroup$ May 6 '19 at 18:32
  • $\begingroup$ Yes it probably won't even matter which one I use, in all the FS Reports by central banks I haven't seen them declare which one they use hence the question. Thanks for your help! $\endgroup$
    – Elias K.
    May 6 '19 at 19:20

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