eThesis - School of Business electronic theses

The purpose of this study is to show that income-subsidization from cross-selling of fee income products is an important source of strength in business banking relationships. I show that in excess to the accumulation of soft information on the client during the course of banking relationship, the income-subsidization from fee income products is an important dimension and a source of relationship strength for the bank. I study the impact of cross-selling and relationship concentration on the loan rate using different product and fee income as well as novel deposit and payment share-of-wallet variables.

I use a unique business customer dataset provided by a commercial bank operating in Finland. The sample consists of 538 client firms that have lending relationship with the bank during a one year observation period. In addition to complete credit exposure and income information, the data retrieved from the bank's internal database includes information on the fee income dimension of each client's relationship as well as bank's proprietary credit scoring. In addition, I have deposit and payment data as well as length of relationship available. Finally, I have other important client characteristics to control for the variables often employed in existing studies.

Results give indication that the non-credit fee income dimension of the relationship has both statistically and economically important association with the loan price. I show that the number of non-lending product lines as well as fee income has negative impact the loan rate. In addition, the analysis of concentration using novel deposit and payment share-of-wallet variables provide further evidence that cross-selling of fee income products provides income-subsidization benefits to the bank.