Trends in relationship lending and factors affecting relationship lending efficiency

This paper investigates the efficiency of relationship managers at the Canadian Imperial Bank of Commerce (CIBC) one of Canada's largest banks. Data envelopment analysis (DEA) efficiency scores are analyzed using regression. The results demonstrate that managers are less efficient when facing larger numbers of loans or smaller loans, M. Berlin and L.J. Mester (On the profitability and cost of relationship lending, Working paper no. 97-43, The What-ton School, University of Pennsylvania, 1997) show that credit smoothing is generally suboptimal. A more complete explanation is obtained by taking a micro-level focus. Other results indicate that banks may improve profitability by reserving relationship lending for loans of larger size. Tests of relationships between efficiency and nonperforming loans and of the skimping hypothesis are conducted. (C) 2002 Elsevier Science B.V. All rights reserved.