Increased competition in the Australian lending market over recent years has forced authorised deposit-taking institutions (ADIs) to attract and retain customers by means of relaxing lending standards. As larger amounts are granted, it appears credit is more easily available to borrowers in comparison to the past. The industry has further experienced significant growth in non-conventional products, such as low-documentation loans, which are generally offered at rates close to the standard rate for traditional loans. While these changes may not create problems during times of strong economic conditions, they are likely to exacerbate loan losses if economic conditions deteriorate, as it seems as if ADIs have taken on more risk in order to stay competitive. The aim of this paper is to examine how lending market competition affects banking institutions' credit risk and performance within Australia. Thus, I hypothesise that increased competition leads to a rise in credit risk and that increased competition tends toward a reduction in performance. I test these hypotheses using linear regression.
Journal Of Law And Financial Management Collection
Publisher version archived with the permission of the publisher Macquarie Graduate School of Management, Macquarie University, NSW, Australia. This archived copy is available for individual, non-commercial use. Permission to use this version for other uses must be obtained from the publisher.