Assessment of the factors that influence the loan amount offered by commercial banks to individuals: a case study in Australia

Abstract

The major objective of the study was to assess the factors that influence the loan amount given to individuals by commercial banks. Secondary data was used containing 614 applicants and it was got from the website kaggle.com. Analysis of the data was done using Stata 15 which involved use of frequency tables, statistical tests like correlation, ANOVA and multiple linear regressions. The results showed that majority of the applicants were male (81.76%) and most the applicants were married (64.82%). Most of the applicants were graduates (78.18%) with majority not self-employed (86.64%). Most of the applicants had property in semi-urban areas (35.95%) and some had in urban areas (32.90%) and the least in rural areas (29.15%). The credit history of many applicants met the guidelines of the bank (77.36%) and the mean loan amount lent out was 146000 Australian dollars. The results that being married increased the loan amount by a unit increase of 12.91 more than not being married and not being a graduate decreased the loan amount by unit decrease of 14.36 less than if one had graduated. Also being self-employed or not did not affect the size of the loan while a higher income increased the loan amount by a unit increase of 0.78% and a higher co-applicant’s income increased the loan by 0.71%. Furthermore, more months of the term of a loan led to unit increase in the loan amount by 0.1223. The researcher concluded that being married increases the loan amount due to the applicant being more stable while graduating from education increases the loan due to the applicant having more knowledge and better financial literacy. A higher applicant income causes a unit increase in the loan amount due to the higher chances that the applicant will pay back in the allocated period of time. I recommend that commercial banks support education to raise public knowledge on loans as well as assist initiatives to boost peoples' earnings, such as increasing support for small enterprises, in order to increase peoples’ incomes for increased loan access.