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The effect of foreign bank entry on the cost of credit in transition economies. Which borrowers benefit most?

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Author Info

  • Degryse, Hans
  • Havrylchyk, O.
  • Jurzyk, Emilia
  • Kozak, S.

Abstract

We employ a unique dataset to study the impact of foreign bank ownership and mode of entry on banks’ lending rates to transparent and opaque borrowers. We find that greenfield banks charge lower lending rates on average and we test for two hypotheses that can explain the lower cost of credit of these institutions: (1) superior performance or (2) different portfolio composition with a focus on more transparent borrowers. Our analysis shows that bank ownership and mode of entry have a large impact on banks’ portfolio composition in terms of borrowers, maturity, and currency. After controlling for these differences, we do not find any impact of foreign bank ownership and mode of entry on lending rates, which is in line with the "portfolio composition hypothesis".

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Bibliographic Info

Paper provided by Katholieke Universiteit Leuven in its series Open Access publications from Katholieke Universiteit Leuven with number urn:hdl:123456789/237854.

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Date of creation: 2008
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Handle: RePEc:ner:leuven:urn:hdl:123456789/237854

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Web page: http://www.kuleuven.be

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Cited by:
  1. Giannetti, Caterina & Jentzsch, Nicola & Spagnolo, Giancarlo, 2010. "Information Sharing and Cross-Border Entry in European Banking," ECRI Papers 2990, Centre for European Policy Studies.
  2. Gábor Pellényi & Tamás Borkó, 2009. "Bank Competition and Firm Growth in the Enlarged European Union," Working Paper / FINESS 5.1, DIW Berlin, German Institute for Economic Research.
  3. 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.

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