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What determines banks’ customer choice? Evidence from transition countries

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Author Info

  • Ralph De Haas

    ()
    (European Bank for Reconstruction and Development)

  • Daniel Ferreira

    (London School of Economics)

  • Anita Taci

    ()
    (European Bank for Reconstruction and Development)

Abstract

This paper explores how bank characteristics and the institutional environment influence the composition of banks’ loan portfolios. Using a new data set based on the recent EBRD Banking Environment and Performance Survey (BEPS), which was conducted in 2005 for 220 banks in 20 transition countries, we show that bank characteristics such as ownership and size are important determinants of bank customer focus. In particular, we find that foreign banks are relatively strongly involved in mortgage lending and lending to subsidiaries of foreign companies, while lending relatively less to large domestic firms. We also find that small banks lend relatively more to SMEs than large banks do, while large banks appear to have a comparative advantage in lending to large customers. We do not find much evidence for the hypothesis that better legal credit protection changes bank portfolio composition. An exception is that banks that perceive pledge and mortgage laws to be of high quality focus more on mortgage lending.

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Bibliographic Info

Paper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 104.

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Length: 19 pages
Date of creation: Nov 2007
Date of revision:
Publication status: Published in De Haas, R.T.A., D. Ferreira and A. Taci (2010), What determines the composition of banks' loan portfolios? Evidence from transition countries, Journal of Banking & Finance, 34, 388-398.
Handle: RePEc:ebd:wpaper:104

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Keywords: banking; portfolio composition;

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References

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  1. Allen N. Berger & Anil K. Kashyap & Joseph M. Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trips It's Been," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 55-218.
  2. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
  3. Guillermo A. Calvo & Fabrizio Coricelli, 1993. "Output Collapse in Eastern Europe: The Role of Credit," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 32-52, March.
  4. Allen N. Berger & Iftekhar Hasan & Leora F. Klapper, 2003. "Further evidence on the link between finance and growth: an international analysis of community banking and economic performance," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2003-47, Board of Governors of the Federal Reserve System (U.S.).
  5. Wendy Carlin & Peter Richthofen, 1995. "Finance, economic development and the transition: the East German case," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 3(2), pages 169-195, 06.
  6. Giannetti, Mariassunta & Ongena, Steven, 2005. "Financial integration and entrepreneurial activity: evidence from foreign bank entry in emerging markets," Working Paper Series, European Central Bank 0498, European Central Bank.
  7. RAFAEL LaPORTA & FLORENCIO LOPEZ-de-SILANES & ANDREI SHLEIFER & ROBERT W. VISHNY, . "Legal Determinants of External Finance,"," CRSP working papers 324, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  8. Thorsten Beck & Asli Demirgüç-Kunt & Vojislav Maksimovic, 2004. "Bank competition and access to finance: international evidence," Proceedings, Federal Reserve Bank of Cleveland, Federal Reserve Bank of Cleveland, pages 627-654.
  9. Berger, Allen N. & Udell, Gregory F., 2006. "A more complete conceptual framework for SME finance," Journal of Banking & Finance, Elsevier, Elsevier, vol. 30(11), pages 2945-2966, November.
  10. Clarke, George R. G. & Cull, Robert & Martinez Peria, Maria Soledad & Sanchez, Susana M., 2002. "Bank lending to small businesses in Latin America : does Bank origin matter?," Policy Research Working Paper Series 2760, The World Bank.
  11. Clarke, George R. G. & Cull, Robert & Martinez Peria, Maria Soledad, 2001. "Does foreign bank penetration reduce access to credit in developing countries"evidence from asking borrowers," Policy Research Working Paper Series 2716, The World Bank.
  12. Allen N. Berger & Gregory F. Udell, 2002. "Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(477), pages F32-F53, February.
  13. Collender, Robert N. & Shaffer, Sherrill L., 2000. "Local Bank Office Ownership, Deposit Control, Market Structure, And Economic Growth," Technical Bulletins, United States Department of Agriculture, Economic Research Service 33555, United States Department of Agriculture, Economic Research Service.
  14. Guillermo Calvo & Fabrizio Coricelli, 1992. "Output Collapse in Eastern Europe," IMF Working Papers 92/64, International Monetary Fund.
  15. Beck, T.H.L. & Demirgüç-Kunt, A. & Maksimovic, V., 2004. "Bank competition and access to finance," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125507, Tilburg University.
  16. DeYoung, Robert & Goldberg, Lawrence G. & White, Lawrence J., 1999. "Youth, adolescence, and maturity of banks: Credit availability to small business in an era of banking consolidation," Journal of Banking & Finance, Elsevier, Elsevier, vol. 23(2-4), pages 463-492, February.
  17. Mitchell A. Petersen & Raghuram G. Rajan, 2000. "Does Distance Still Matter? The Information Revolution in Small Business Lending," NBER Working Papers 7685, National Bureau of Economic Research, Inc.
  18. William R. Keeton, 1996. "Do bank mergers reduce lending to businesses and farmers? New evidence from Tenth District states," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 63-75.
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Cited by:
  1. Oluwarotimi Owolabi & Sarmistha Pal, 2009. "The Value of Business Networks; an Analysis of Firm Financing in Transition Economies," CEDI Discussion Paper Series, Centre for Economic Development and Institutions(CEDI), Brunel University 09-01, Centre for Economic Development and Institutions(CEDI), Brunel University.
  2. Klapper, Leora & Tzioumis, Konstantinos, 2008. "Taxation and capital structure : evidence from a transition economy," Policy Research Working Paper Series 4753, The World Bank.
  3. Giannetti, Mariassunta & Ongena, Steven, 2008. ""Lending by Example": Direct and Indirect Effects of Foreign Banks in Emerging Markets," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6958, C.E.P.R. Discussion Papers.
  4. Leora Klapper & Konstantinos Tzioumis, 2008. "Taxation and Capital Structure: evidence from a transition economy," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe, Hellenic Observatory, LSE 16, Hellenic Observatory, LSE.
  5. Leora Klapper & Konstantinos Tzioumis, 2008. "Taxation and capital structure: evidence from a transition economy," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 21915, London School of Economics and Political Science, LSE Library.
  6. Owolabi, Oluwarotimi & Pal, Sarmistha, 2011. "The Value of Business Networks in Emerging Economies: An Analysis of Firms' External Financing Opportunities," IZA Discussion Papers 5738, Institute for the Study of Labor (IZA).

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