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Foreign Currency Loans - Demand or Supply Driven?

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  • Brown, M.
  • Kirschenmann, K.
  • Ongena, S.

    (Tilburg University, Center for Economic Research)

Abstract

Motivated by current concerns over foreign currency exposures in emerging economies, we examine the currency denomination of business loans made in Bulgaria prior to the current crisis. We analyze information on the requested and granted currency for more than hundred thousand loans granted by one bank to sixty thousand different firms during the period 2003- 2007. This unique data set allows us to disentangle demand-side from supply-side determinants of foreign currency loans. We find that the bank in our sample often grants loans in foreign currency even when a firm requests a loan in local currency. The bank lends in foreign currency, not only to less risky firms, but also when the firm requested a large or long-term loan and after the bank itself received more funding in euro. These results suggest that foreign currency borrowing in Eastern Europe is not only be driven by borrowers who try to benefit from lower interest rates but may be partly supply-driven with banks hesitant to lend long-term in local currency and eager to match the currency structure of their assets and liabilities.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2009-78.

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Date of creation: 2009
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Handle: RePEc:dgr:kubcen:200978

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Web page: http://center.uvt.nl

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Keywords: foreign currency debt; banking;

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References

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Citations

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Cited by:
  1. Gregorio Impavido & Heinz Rudolph & Luigi Ruggerone, 2013. "Bank Funding in Central, Eastern and South Eastern Europe Post Lehman," IMF Working Papers 13/148, International Monetary Fund.
  2. Martin Brown & Ralph De Haas, 2012. "Foreign banks and foreign currency lending in emerging Europe," Economic Policy, CEPR;CES;MSH, vol. 27(69), pages 57-98, 01.
  3. Martin Brown & Steven Ongena & Pinar Yeşin, 2014. "Information Asymmetry and Foreign Currency Borrowing by Small Firms," Comparative Economic Studies, Palgrave Macmillan, vol. 56(1), pages 110-131, March.
  4. Jarko Fidrmuc & Mariya Hake & Helmut Stix, 2011. "Households’ Foreign Currency Borrowing in Central and Eastern Europe," Working Papers 171, Oesterreichische Nationalbank (Austrian Central Bank).
  5. Baele, Lieven & Farooq, Moazzam & Ongena, Steven, 2011. "Of Religion and Redemption: Evidence from Default on Islamic Loans," CEPR Discussion Papers 8504, C.E.P.R. Discussion Papers.
  6. Brown, Martin & Lane, Philip R., 2011. "Debt overhang in emerging Europe ?," Policy Research Working Paper Series 5784, The World Bank.
  7. Marina Tkalec, 2013. "Monetary Determinants of Deposit Euroization in European Post-Transition Countries," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(1), pages 89-101, March.
  8. Hudecz, András, 2012. "Párhuzamos történetek. A lakossági devizahitelezés kialakulása és kezelése Lengyelországban, Romániában és Magyarországon
    [Parallel stories. The development and treatment of household
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 349-411.
  9. Stephan Barisitz, 2011. "Nonperforming Loans in CESEE – What Do They Comprise?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4, pages 46-68.
  10. Hans-Joachim Dübel & Simon Walley, 2010. "Regulation of Foreign Currency Mortgage Loans : The Case of Transition Countries in Central and Eastern Europe," World Bank Other Operational Studies 12943, The World Bank.
  11. Marijana Ivanov & Marina Tkalec & Maruška Vizek, 2011. "The Determinants of Financial Euroization in a Post-Transition Country: Do Threshold Effects Matter?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 61(3), pages 230-251, July.
  12. Brown, M. & Haas, R. de, 2010. "Foreign Currency Lending in Emerging Europe: Bank Level Evidence," Discussion Paper 2010-135, Tilburg University, Center for Economic Research.
  13. Elod Takáts & Agustín Villar, 2011. "International banks, new liquidity rules and monetary policy in EMEs," BIS Papers chapters, in: Bank for International Settlements (ed.), Capital flows, commodity price movements and foreign exchange intervention, volume 57, pages 9-35 Bank for International Settlements.

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