The Impact of Foreign Bank Entry on SME Loans: An Investigation for Turkey

Limited and costly financing opportunities for small and medium enterprises ( SME), that are important in the private sector, reducing the performance of SMEs. Influence of the foreign ownership structure of banks which is the most important source of financing of SMEs on the behavior of the SME loans has become more controversial in recent years that foreign inflows to developing countries has increased. Many strategic and financial foreign investment has been realized in the Turkish banking sector in recent years. The aim of this study to investigate the effect of increased foreign ownership on SME credit supply. Dynamic interactions between SME lending share, foreign ownership share of banking and total credits in Turkey for almost seven years period from 2006–12 to 2013-07 were analyzed with impulse-response functions and variance decomposition methods within the framework of the VAR analysis. The analysis findings indicate that foreign ownership affects the SME credit supply negatively with a delay of six months. Results of the study support the hypothesis that foreign banks reduce SME lending having high information sensitivity, focusing on less risky and high quality customer.