We use a hedonic pricing model to analyse in a risk–return framework the determinants of the pricing of a sample of over 5,000 syndicated credits granted to developing country borrowers between 1993 and 2001. We conclude that syndicated loans with riskier characteristics or granted to riskier borrowers are more expensive than others, although the effect of purely micro-economic price determinants is in several instances weaker when variables reflecting macro-economic conditions in borrowers' countries are introduced into the model. In addition to individual loan or borrower considerations, lenders seem to focus more on macro-economic factors to determine the pricing of their loans, such as the level of exports relative to debt service in the developing countries where the borrowers are located. For some, this means restricted access to external financing. We detect possible evidence of lenders exploiting their market power when lending to developing country borrowers. Certain banks appear to charge a premium to change initially agreed loan terms. Furthermore, discounts are granted on developing country loans provided by small groups or clubs of relationship banks rather than on facilities with participation by a large number of institutions.
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