UNIVERSITY OF ECONOMICS AND BUSINESS FALCULTY OF FINANCE & BANKING THESIS Instructor: Ha Quynh Mai, MSc Student: Quach Hoang Mai Student ID: 20050134 Class: QH2020 CLC 3 Ha Noi, October, 2023 UNIVERSITY OF ECONOMICS AND BUSINESS FALCULTY OF FINANCE & BANKING THESIS Instructor: Ha Quynh Mai, MSc Debate Instructor: Student: Quach Hoang Mai Student ID: 20050134 Class: QH2020 CLC 3 Ha Noi, October, 2023 ACKNOWLEDGEMENTS The period of research has received enthusiastic support from the teacher, which I greatly appreciate. Therefore, I would like to express my sincere and profound gratitude to Ms. Ha Quynh Mai, MSc - my thesis instructor, who has guided and assisted me in overcoming challenges in the best possible way. However, knowledge is infinite while one's abilities and experiences are limited.
Therefore, I may have made mistakes during the process. As such, I earnestly hope to receive constructive feedback and fair evaluations from my teacher in order to improve my thesis and advance further with this unique topic in the future. I sincerely thank you for your support! Ha Noi, October 2023 Quach Hoang Mai TABLE OF CONTENTS LIST OF ABBREVIATIONS .sscssssssssssssscsssccssccsscsscssssssssssssscsssscsssssssssssscsssssssscsssoees 5 LISTS OF IMAGES, TABLES .scccsscssssssssssssscssscscsscscsssssscssssscsssssssssssessssscssssssesesssneee 6 CHAPTER 1: INTRODUUCTI(ÌN. Aims and missions Of the research.
Research objectives and Research S€OJD€. Questions of the research. Data and research II€ẨÏ1O (S. Contribution to the F€S€/AFFCÌH.
Structure Of the Fr€S€/AFCH. 0 T0 00009 004 0ø 10 CHAPTER 2: LITERATURE ïÀE WT E: ÏÍ/. The theoretical ÍraIm€WWOLFĂK. Bank Competition and Bank Stability.
Empirical Studies on P2P lending and Banking stability. Research Hypothesis and research model. Factors Affecting Banking Stability. chi, 20 CHAPTER 3: RESEARCH ME THODDOL(G Ÿ.
Research Pr@ÏDÏ€TTIS. Determining the Research Methodolog. Data Collection and Data /ÁH(ÏÿSÏS. Data Collection Methods.
29 CHAPTER 4: RESULTS AND FILNDIINS. Descriptive statistical amalySsis. -G HS KH kg ky 30 L2) 2/Aống ốeốốốốốỐ. Analysis Linear regression (Pooled Ols) .4, Analysis Random-effects GLS regression (REM|).
Analysis Fixed-effects (within) regression (FEM). Hausman (1978) specification test. Wooldridge test for autocorrelation in panel đaa.s «5< s«e<s« 40 CHAPTER 5: CÓ NCT ULSI(OÌN. Contribution of the F€S€2FCCHH.
Limitations of the research. << S395 995 998845856885845804084088408000840801084004000840800081006 47 LIST OF ABBREVIATIONS Abbreviations Definition P2P lending Peer-to-Peer lending GDP Gross domestic product GNP Gross national product IT Information Technology FSB Financial stability board GFDR Global financial development report CPI Consumer price index PPI Producer price index EIU Economists telligence unit WPUI World pandemic uncertainty index BCBS Basel Committe on Banking supervision IMF International Monetary Fund WB World Bank LISTS OF IMAGES, TABLES No. Images/Tables Name of the images/tables Page 1 Image 2.1 Research Model 20 2 Table 4.1 Variables Content and Meaning 30 3 Table 4.2 Descriptive Statistics 30 4 Table 4.3 Pairwise correlation 3l 5 Table 4.4 Linear regression (Pooled ols) 34 6 Table 4.5 Linear regression (Pooled ols) results 35 7 Table 4.6 Variance Inflation Factor (VIF) 35 8 Table 4.7 Random-effects GLS regression (REM) 36 9 Table 4.8 Random-effects GLS regression results 37 10 Table 4.9 Fixed-effects (within) regression (FEM) 38 11 Table 4.10 Fixed-effects (within) regression results 39 12 Table 4.11 Hausman (1978) specification test results 39 CHAPTER 1: INTRODUCTION 1. Rationale The global financial landscape has witnessed significant transformations in recent years, with the rise of financial technology (FinTech) playing a pivotal role in reshaping traditional financial services.
One of the most notable innovations within this domain is Peer-to-Peer (P2P) lending, which has emerged as a disruptive force in the world of finance. P2P lending platforms connect borrowers directly with lenders, circumventing traditional banking intermediaries. Over the last ten years, P2P lending platforms have experienced significant growth in size and scope, attracting the attention of both investors and regulatory bodies (Buchak et al. On one side, potential P2P lending platforms have encountered significant barriers to entry, unclear policy directives, and stringent regulations that can impede innovation and delay the adoption of new technologies by industry players.
However, from a financial stability standpoint, it is not unreasonable to maintain these barriers and regulations (Kim, 2015), especially considering that the financial sector is still dealing with the repercussions of the global financial crisis. P2P lending platforms have, at times, exhibited issues related to responsible credit allocation, and if they expand too rapidly without appropriate regulation, they could pose a threat to overall financial stability. This novel approach to lending has gained considerable popularity worldwide, raising important questions about its implications for the stability of the global banking system. The emergence of peer-to-peer (P2P) lending platforms has disrupted the traditional banking sector by offering alternative sources of financing for individuals and businesses.
P2P lending allows borrowers to directly access loans from individual investors through online platforms, bypassing the need for traditional banks as intermediaries. While existing research indicates that the P2P lending market share is relatively small compared to traditional bank lending and does not pose a significant threat to the banking system, there is an inverse relationship between them (de Roure et al. P2P lending can gain a competitive edge over bank lending during financial crises or external shocks in the supply of bank credit (Tang, 2019). The recent rapid growth of P2P lending has attracted considerable attention from researchers and policymakers, leading to debates about its impact on the stability of the banking sector.
Banking sector stability is a critical concern for policymakers and regulators, as it plays a crucial role in maintaining financial stability and supporting economic growth. Banks act as essential financial intermediaries, facilitating the flow of funds from savers to borrowers and facilitating economic transactions. However, the rise of P2P lending has raised questions about its potential effects on banking stability. This research aims to investigate the relationship between P2P lending and banking stability across different countries.
It aims to determine whether the expansion of P2P lending platforms poses risks to the stability of traditional banking or whether it complements and strengthens the overall financial system. By analyzing empirical data and relevant variables, this study intends to shed light on the interactions between P2P lending and banking stability. To achieve its objectives, this research will take a comparative approach, examining various countries with diverse regulatory frameworks, market characteristics, and levels of P2P lending adoption. By studying a wide range of countries, it will be possible to identify common trends, disparities, and potential factors influencing banking stability within the context of P2P lending.
The outcomes of this research will hold significance for policymakers, regulators, financial institutions, and investors. A comprehensive understanding of the connection between P2P lending and banking stability is essential for effectively managing risks, crafting suitable regulations, and ensuring the resilience of the financial system. Furthermore, it will offer insights into the potential advantages and challenges associated with the growth of P2P lending platforms, informing the decision-making processes of stakeholders. Aims and missions of the research e Aims of the research: Evaluate the worldwide impact Peer-to-Peer lending on the stability of banking systems.
By conducting an in-depth analysis, it seeks to understand the extent of influence that the rapid growth of P2P lending platforms exerts on traditional banking sectors across different nations. Futhurmore, the research aims to identify and mange potential risks associated with P2P lending in relation to banking stability. A significant aspect of this research is its comparative approach. It strives to compare and contrast the impact of P2P lending on banking stability in various countries.
By considering diverse regulatory environments, market conditions, and levels of P2P lending adoption, the project aims to reveal commonalities and differences on a global scale. e Missions of the research: — Examine and analyze the relationship between bank stability and the growth of Peer-to-Peer (P2P) lending platforms in different countries. — Identify key factors that contribute to either the stability or instability of banks in the presence of P2P lending activities — Provide policymakers, regulators, and financial institutions with evidence-based recommendations and guidelines to promote a stable and inclusive financial system in the context of evolving financial technologies. Research objectives and Research Scope e Research Objectives: Peer-to-Peer Lending, Banking System e Research Scope: Various countries 1.
Questions of the research e What is the relationship between the growth of P2P lending and traditional banking sectors in various countries? e Does the growth of P2P lending affect the stability of traditional banking systems in different countries? 1. Data and research methods e The research study collected data from reputable and relatively accurate sources such as the Cambridge Alternative Finance Benchmarks, the Global Index (World Bank), and the International Monetary Fund,. e Research methods: Quantitative analysis, Document analysis 1. Contribution to the research In this research, we have selected the most recent data from 2015 to 2020 for P2P lending.
Furthermore, we have chosen a research model that is most suitable for this 10 topic. Additionally, we have conducted a study on the impact of P2P lending on banking stability, which has been less explored in previous research. Structure of the research Chapter 1: Introduction Chapter 2: Literature review Chapter 3: Research Methodology Chapter 4: Results and Findings Chapter 5: Conclusion 11 CHAPTER 2: LITERATURE REVIEW 2. The theoretical framework 2.
P2P lending P2P lending, also known as peer-to-peer lending or marketplace lending, emerged as a financial innovation in the early 2000s (Amer, Buckley, & Zetzsche, 2016). Besides, P2P lending, as defined by Zhang and Liu (2018), involves direct lending between individual investors and borrowers through online platforms, bypassing traditional financial intermediaries. The first platform to facilitate P2P lending was Zopa, founded in the United Kingdom in 2005 (Arner, Buckley, & Zetzsche, 2016). It aimed to connect borrowers directly with individual lenders through an online platform, bypassing traditional financial intermediaries such as banks.
The competition between P2P lending and bank lending is a significant phenomenon in the financial industry. One of the main aspects of this competition is access to finance. P2P lending platforms provide a more accessible and inclusive platform for borrowers who may have difficulty obtaining loans from traditional banks. This includes individuals or businesses with limited credit history, non-traditional income sources, or unconventional collateral.
P2P lending opens up opportunities for these borrowers to access funds that may not have been available to them through traditional banking channels. Another key factor is the interest rates and fees associated with borrowing. P2P lending platforms often boast competitive interest rates compared to banks. This is partly due to the absence of intermediaries and the lower operational costs associated with running an online platform.
Additionally, the P2P lending model allows for more direct connections between lenders and borrowers, potentially leading to more favorable terms for both parties. The competition between P2P lending and bank lending revolves around access to finance, interest rates, risk assessment, regulation, trust, and market reach. Both P2P lending platforms and banks offer unique advantages and face distinct challenges. The primary purpose of P2P lending is to provide an alternative source of financing for individuals and small businesses (Arner, Buckley, & Zetzsche, 2016).
It enables borrowers to access loans quickly and easily, often at competitive interest rates, while offering lenders the opportunity to earn attractive returns on their investments. P2P lending platforms typically employ sophisticated technology and data analysis to match borrowers and lenders based on their preferences, creditworthiness, and risk profiles. 12 The concept of P2P lending gained traction globally after the 2008 financial crisis when traditional banks tightened their lending standards and credit availability declined (Amer, Buckley, & Zetzsche, 2016). P2P lending filled this gap by offering a more inclusive, decentralized lending model.
Since then, the industry has experienced significant growth and diversification, with numerous platforms operating worldwide. Peer-to-Peer (P2P) lending has emerged as a financial innovation with profound global ramifications. It has transformed access to credit, fostering financial inclusion for individuals and small enterprises worldwide. Simultaneously, P2P lending has disrupted the traditional banking sector, challenging the hegemony of established financial institutions.
This disruption has spurred banks to adapt and innovate, leading to increased competition and improved financial services on a global scale.