Using panel data from Taiwan, this paper performed empirical test to explore how the credit status and relationship have impacted loan spreads. Our findings are as follows : (1) Private financial holding companies and private non-financial holding companies grant loan spreads that are significantly lower than those of state-owned banks. Foreign banks grant loan spreads that are significantly higher than those of state-owned banks, and only foreign bank loan spreads are significantly higher than

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... those of state-owned banks when borrowers are considered to be high risk. (2) Banks reduce their loan spreads only for high credit risk borrowers with obvious improvements in credit ratings, but this does not apply to general borrowers even when the credit rating condition is improved. Furthermore, creditor banks unreasonably increase their loan spreads, when the borrowing companies have their credit ratings upgraded. (3) Empirical findings show that the biggest and main creditor banks exhibit significantly lower loan spreads, and were also willing to give high credit risk customers lower lending spreads, which imply that Taiwan's banks emphasis "banking relationship" while lending. (4) However, robust test over the past decade shows that the banks will raise the lending spreads while the borrower's risk increasing and reduce the lending spreads while the borrower's credit rating upgraded.