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Foreign currency lending in emerging Europe: bank-level evidence

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  • Martin Brown

    (Swiss National Bank, Tilburg University)

  • Ralph De Haas

    (EBRD)

Abstract

Based on survey data from 193 banks in 20 countries we provide the first bank-level analysis of the determinants of foreign currency (FX) lending in emerging Europe. We find that FX lending by all banks, regardless of their ownership structure, is strongly determined by the macroeconomic environment. We find no evidence of foreign banks ‘pushing’ FX loans indiscriminately because of easier access to wholesale funding in foreign currency. In fact, while foreign banks do lend more in FX to corporate clients, they do not do so to retail clients. We also find that after a take-over by a foreign bank, the acquired bank does not increase its FX lending any faster than a bank which remains in domestic hands.

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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 122.

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Length: 32 pages
Date of creation: Dec 2010
Date of revision:
Handle: RePEc:ebd:wpaper:122

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  1. George Allayannis & Gregory W. Brown & Leora F. Klapper, 2003. "Capital Structure and Financial Risk: Evidence from Foreign Debt Use in East Asia," Journal of Finance, American Finance Association, vol. 58(6), pages 2667-2710, December.
  2. Emilia Magdalena Jurzyk & Olena Havrylchyk, 2010. "Inherited or Earned? Performance of Foreign Banks in Central and Eastern Europe," IMF Working Papers 10/4, International Monetary Fund.
  3. Martinez, Lorenza & Werner, Alejandro, 2002. "The exchange rate regime and the currency composition of corporate debt: the Mexican experience," Journal of Development Economics, Elsevier, vol. 69(2), pages 315-334, December.
  4. Martin Brown & Karolin Kirschenmann & Steven Ongena, 2011. "Foreign Currency Loans - Demand or Supply Driven?," Working Papers 2011-02, Swiss National Bank.
  5. Carlos Óscar Arteta, 2003. "Exchange Rate Regimes and Financial Dollarization: Does Flexibility Reduce Bank Currency Mismatches?," International Finance 0303005, EconWPA.
  6. Nicolo, Gianni De & Honohan, Patrick & Ize, Alain, 2005. "Dollarization of bank deposits: Causes and consequences," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1697-1727, July.
  7. Enrica Detragiache & Poonam Gupta & Thierry Tressel, 2006. "Foreign Banks in Poor Countries: Theory and Evidence," IMF Working Papers 06/18, International Monetary Fund.
  8. De Haas, Ralph & Naaborg, Ilko, 2006. "Foreign banks in transition countries. To whom do they lend and how are they financed?," MPRA Paper 6320, University Library of Munich, Germany.
  9. Joe Peek & Eric S. Rosengren, 1997. "Bank consolidation and small business lending: it's not just bank size that matters," Working Papers 97-1, Federal Reserve Bank of Boston.
  10. Sylwester Kozak & Emilia Magdalena Jurzyk & Hans Degryse & Olena Havrylchyk, 2009. "Foreign Bank Entry and Credit Allocation in Emerging Markets," IMF Working Papers 09/270, International Monetary Fund.
  11. Beer, Christian & Ongena, Steven & Peter, Marcel, 2010. "Borrowing in foreign currency: Austrian households as carry traders," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2198-2211, September.
  12. Benavente, Jose Miguel & Johnson, Christian A. & Morande, Felipe G., 2003. "Debt composition and balance sheet effects of exchange rate depreciations: a firm-level analysis for Chile," Emerging Markets Review, Elsevier, vol. 4(4), pages 397-416, December.
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Cited by:
  1. Kutan, Ali & Ozsoz, Emre & Rengifo, Erick, 2012. "Dynamics of Foreign Currency Lending in Turkey," MPRA Paper 36214, University Library of Munich, Germany.
  2. Kutan, Ali M. & Ozsoz, Emre & Rengifo, Erick W., 2012. "Cross-sectional determinants of bank performance under deposit dollarization in emerging markets," Emerging Markets Review, Elsevier, vol. 13(4), pages 478-492.
  3. Barisitz, Stephan, 2011. "Nonperforming Loans in CESEE – What Do They Comprise?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4.
  4. 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.
  5. Fidrmuc, Jarko & Hake, Mariya & Cuaresma, Jesús Crespo, 2011. "Determinants of Foreign Currency Loans in CESEE Countries: A Meta-Analysis," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4.

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