Influence of financial reform on business-lending performance of large and small commercial banks -evidence from the Taiwan market

To analyze the performance of small business lending, this study uses the regression model of Carter and McNulty (2005) to test the relationships among loan spread, bank size, and financial reform. This article establishes a theoretical and practical mathematical model for unique banking environment in Taiwan. The conclusion and policy implications are as follows. First, bank spread reduces with increasing loan scale. Excluding government-owned banks gets similar results, and indicates similar behavior in government-owned and privatized banks. Second, the loan performance of new privatized banks improved in the long term. Third, if current banks increase their proportion of small business lending, the increase in loan spread remains unchanged, meaning the loan spread is previously higher than it currently is. Additionally, different from the literature of Carter and McNulty (2005), this study fails to find any small bank advantage, but identifies a significant positive relationship between size and loan spread. Moreover, the loan spread increased with bank size, indicating that over-banking still exists and the problem of excessively small size of financial institutions remains incompletely resolved, with large banks having gradually improves their business-lending performance over time, slowly increasing the spread of business lending.