The maturity‐lengthening role of national development banks

• Published date: 01 March 2023
• Author: Alfredo Schclarek,Jiajun Xu,Jianye Yan
• Date: 01 March 2023
• DOI: http://doi.org/10.1111/irfi.12391

ORIGINAL ARTICLE

The maturity-lengthening role of national

development banks

Alfredo Schclarek

1

| Jiajun Xu

2

| Jianye Yan

2

1

Department of Economics, Universidad

Nacional de Cordoba and National Scientific

and Technical Research Council (CONICET),

Argentina

2

Institute of New Structural Economics,

National School of Development, Peking

University, Beijing, China

Correspondence

Jiajun Xu, Institute of New Structural Economics,

National School of Development, Peking

University, Langrun Garden 165, Yiheyuan Road

No. 5, Beijing 100871, China.

Email: jiajunxu@nsd.pku.edu.cn

Funding information

Ford Foundation, Grant/Award Numbers:

128664, 139355; National Natural Science

Foundation of China, Grant/Award Number:

72141301; National Natural Science

Foundation of China - Data Center for

Management Science at Peking University,

Grant/Award Number: 2017KEY06; National

Social Science Foundation of China,

Grant/Award Numbers: 17BJL124, 20BJL021;

SECYT, UNC, Argentina, Grant/Award

Number: 33620180101069CB

[Correction added on 27 October 2022, after

first online publication: the affiliation of

Jianye Yan has been updated]

Abstract

We analyze why national development banks (NDBs) may

provide longer-term loans to firms than private commercial

banks (PCBs). If NDB bonds have higher collateral value

than PCB bonds, then NDBs may lend longer-term than

PCBs. NDBs may enjoy higher recapitalization willingness

and capacity by the state and hence greater collateral value

than PCBs. Moreover, NDBs may have advantages over

state-owned commercial banks if NDB bonds enjoy higher

market liquidity. However, NDBs may suffer from poor

monitoring quality owing to undue political intervention,

thus undermining collateral value. Our study implies that

NDBs are not substitutes for but complements to PCBs.

KEYWORDS

collateral capacity, loan maturity, market liquidity, monitoring

quality, national development banks, recapitalization

JEL CLASSIFICATION

E44, G01, G21, G28, H81

1|INTRODUCTION

The availability of long-term finance has a positive and significant impact on long-run growth (Beck, 2012). More-

over, it contributes to higher growth by playing a countercyclical role that lowers macroeconomic volatility (Aghion

et al., 2005). When long-term finance is not available for eligible firms, they become vulnerable to rollover risks and

Received: 12 April 2021 Revised: 20 June 2022 Accepted: 30 July 2022

DOI: 10.1111/irfi.12391

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial License, which permits use,

distribution and reproduction in any medium, provided the original work is properly cited and is not used for commercial purposes.

© 2022 The Authors. International Review of Finance published by John Wiley & Sons Australia, Ltd on behalf of International Review

of Finance Ltd.

130 International Review of Finance. 2023;23:130–157.

wileyonlinelibrary.com/journal/irfi

may become reluctant to undertake longer-term fixed investments, leading to adverse effects on economic growth

and welfare (Diamond, 1991). Despite its significance, long-term finance is in short supply, especially in developing

countries.

One way to overcome the scarcity of long-term finance is to establish national development banks (NDBs).

NDBs are financial institutions initiated and steered by central governments with the official mission of fulfilling pub-

lic policy objectives (Xu et al., 2021), such as financing high-risk and long-term projects that go beyond the risk appe-

tite of private commercial banks (Armendáriz de Aghion, 1999). According to the world's first development financing

institutions database developed by the Institute of New Structural Economics at Peking University in collaboration

with the French Development Agency, the total assets of all NDBs are as much as nine trillion dollars, accounting for

about 10% of global gross domestic product.

1

Moreover, during the financial crisis that erupted in 2008, NDBs acted

in a countercyclical manner, which helped stabilize the real economy (Brei & Schclarek, 2018). In addition, the global

development finance architecture increasingly fosters the cooperation between NDBs and multilateral development

banks (Schclarek & Xu, 2022).

Using a comprehensive list of NDBs worldwide, matched with bank-level data by BankFocus (Hu et al., 2022),

Figure 1shows the average ratio of loans to customers with a maturity of longer than 5 years, discriminating among

the following bank types: (a) NDBs, (b) state-owned commercial banks (SCBs), and (c) privately owned commercial

banks (PCBs). The database consists of a large sample of 1251 banks, of which 58 are NDBs, 112 are SCBs, and

1081 are PCBs, across 106 countries between 2011 and 2018. As clearly shown in Figure 1, and supported by the

econometric findings of Hu et al. (2022), which control for bank-level characteristics and macroeconomic factors,

NDBs provide longer-term loans to customers than either SCBs or PCBs. Another empirical paper on the importance

of NDBs for long-term loans is that of de Luna-Martinez and Vicente (2012), that, for a sample of 90 NDBs in

61 countries, discovered that 54% of loans had a maturity of over 10 years, 29% of loans had a maturity of

6–10 years, and only 16% of loans had a maturity of less than 5 years.

One reason why NDBs may provide long-term finance is that their official mission is development-oriented

rather than focusing exclusively on maximizing profits. NDBs are more willing to internalize certain positive external-

ities of longer-term loans to firms and take on risks that private banks will not (Brei & Schclarek, 2013,2015,2018)

and optimally lend longer-term than PCBs.

2

Another explanation is that the maturity-lengthening role of NDBs may

FIGURE 1 Average ratio of loans to customers larger than 5 years. Source: Hu et al. (2022) based on BankFocus

data, and the first global database on public development banks and development financing institutions (Xu

et al.,2021) by the Institute of New Structural Economics at Peking University and French Development Agency

available at www.dfidatabase.pku.edu.cn.

SCHCLAREK ET AL.131