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Foreign banks and foreign currency lending in emerging Europe

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  • Brown, Martin
  • de Haas, Ralph

Abstract

Based on survey data from 193 banks in 20 countries we provide the first bank-level analysis of the relationship between bank ownership, bank funding and foreign currency (FX) lending across emerging Europe. Our results contradict the widespread view that foreign banks have been driving FX lending to retail clients as a result of easier access to foreign wholesale funding. Our cross-sectional analysis shows that foreign banks do lend more in FX to corporate clients but not to households. Moreover, we find no evidence that wholesale funding had a strong causal effect on FX lending for either foreign or domestic banks. Panel estimations show that the foreign acquisition of a domestic bank does lead to faster growth in FX lending to households. However, this is driven by faster growth in household lending in general not by a shift towards FX lending.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 36323.

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Date of creation: Jan 2012
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Publication status: Published in Economic Policy 27.69(2012): pp. 57-98
Handle: RePEc:pra:mprapa:36323

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Keywords: Foreign banks; FX lending; financial integration; Emerging Europe;

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References

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  1. Martin Brown & Karolin Kirschenmann & Steven Ongena, 2011. "Foreign Currency Loans - Demand or Supply Driven?," Working Papers 2011-02, Swiss National Bank.
  2. Olena Havrylchyk & Emilia Jurzyk, 2008. "Inherited or Earned? Performance of Foreign Banks in Central and Eastern Europe," Working Papers 2008-16, CEPII research center.
  3. De Haas, Ralph & Ferreira, Daniel & Taci, Anita, 2010. "What determines the composition of banks' loan portfolios? Evidence from transition countries," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 388-398, February.
  4. Degryse, Hans & Havrylchyk, Olena & Jurzyk, Emilia & Kozak, Sylwester, 2012. "Foreign bank entry, credit allocation and lending rates in emerging markets: Empirical evidence from Poland," Journal of Banking & Finance, Elsevier, vol. 36(11), pages 2949-2959.
  5. Julia Kiraly & Judit Antal & Marton Nagy & Viktor Szabo, 2008. "Retail credit expansion and external finance in Hungary: lessons from the recent past (1998–2007)," BIS Papers chapters, in: Bank for International Settlements (ed.), Financial globalisation and emerging market capital flows, volume 44, pages 221-233 Bank for International Settlements.
  6. Brown, Martin & Jappelli, Tullio & Pagano, Marco, 2008. "Information Sharing and Credit: Firm-Level Evidence from Transition Countries," Proceedings of the German Development Economics Conference, Zurich 2008 3, Verein für Socialpolitik, Research Committee Development Economics.
  7. Nicola Cetorelli & Linda S. Goldberg, 2010. "Global banks and international shock transmission: evidence from the crisis," Staff Reports 446, Federal Reserve Bank of New York.
  8. Brown, Martin & Ongena, Steven & Yesin, Pinar, 2009. "Foreign Currency Borrowing by Small Firms," CEPR Discussion Papers 7540, C.E.P.R. Discussion Papers.
  9. Ralph De Haas & Iman Van Lelyveld, 2008. "Internal capital markets and lending by multinational bank subsidiaries," Working Papers 105, European Bank for Reconstruction and Development, Office of the Chief Economist.
  10. 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.
  11. Fidrmuc, Jarko & Hake, Mariya & Stix, Helmut, 2013. "Households’ foreign currency borrowing in Central and Eastern Europe," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 1880-1897.
  12. 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.
  13. 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.
  14. Carlos O. Arteta, 2002. "Exchange rate regimes and financial dollarization: does flexibility reduce bank currency mismatches?," International Finance Discussion Papers 738, Board of Governors of the Federal Reserve System (U.S.).
  15. Enrica Detragiache & Poonam Gupta & Thierry Tressel, 2006. "Foreign Banks in Poor Countries: Theory and Evidence," IMF Working Papers 06/18, International Monetary Fund.
  16. Ralph de Haas & Iman van Lelyveld, 2003. "Foreign Banks and Credit Stability in Central and Eastern Europe: A Panel Data Analysis," DNB Staff Reports (discontinued) 109, Netherlands Central Bank.
  17. Christian Beer & Steven Ongena & Marcel Peter, 2008. "Borrowing in Foreign Currency: Austrian Households as Carry Traders," Working Papers 2008-19, Swiss National Bank.
  18. Basso, Henrique S. & Calvo-Gonzalez, Oscar & Jurgilas, Marius, 2011. "Financial dollarization: The role of foreign-owned banks and interest rates," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 794-806, April.
  19. Brown, Martin & Ongena, Steven & Yesin, Pinar, 2011. "Foreign currency borrowing by small firms in the transition economies," Journal of Financial Intermediation, Elsevier, vol. 20(3), pages 285-302, July.
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Citations

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Cited by:
  1. Hake, Mariya & Stix, Helmut & Fidrmuc, Jarko, 2011. "Households’ Foreign Currency Borrowing in Central and Eastern Europe," Working Papers 171, Oesterreichische Nationalbank (Austrian Central Bank).
  2. Pinar Yesin, 2013. "Foreign Currency Loans and Systemic Risk in Europe," Working Papers 13.06, Swiss National Bank, Study Center Gerzensee.
  3. Brown, Martin, 2013. "The transmission of banking crises to households : lessons from the 2008-2011 crises in the ECA region," Policy Research Working Paper Series 6528, The World Bank.
  4. Ralph De Haas & Yevgeniya Korniyenko & Alexander Pivovarsky & Elena Loukoianova, 2012. "Foreign Banks and the Vienna Initiative: Turning Sinners into Saints?," IMF Working Papers 12/117, International Monetary Fund.
  5. Brada, Josef C. & Kutan, Ali M. & Vukšić, Goran, 2013. "Capital Flight in the Presence of Domestic Borrowing: Evidence from Eastern European Economies," World Development, Elsevier, vol. 51(C), pages 32-46.
  6. Beck, T.H.L. & Brown, M., 2011. "Use of Banking Services in Emerging Markets -Household-Level Evidence (Replaces CentER DP 2010-092)," Discussion Paper 2011-089, Tilburg University, Center for Economic Research.
  7. Brown, M. & Ongena, S. & Yesin, P., 2011. "Information Asymmetry and Foreign Currency Borrowing by Small Firms," Discussion Paper 2011-099, Tilburg University, Center for Economic Research.
  8. Beck, Thorsten, 2012. "Foreign Bank Ownership and Household Credit," Working Papers on Finance 1206, University of St. Gallen, School of Finance.
  9. Beck, Thorsten & Brown, Martin, 2011. "Use of Banking Services in Emerging Markets--Household-Level Evidence," CEPR Discussion Papers 8475, C.E.P.R. Discussion Papers.
  10. Brown, Martin & De Haas, Ralph & Sokolov, Vladimir, . "Regional Inflation and Financial Dollarization," Working Papers on Finance 1327, University of St. Gallen, School of Finance.
  11. Kleimeier, Stefanie & Sander, Harald & Heuchemer, Sylvia, 2013. "Financial crises and cross-border banking: New evidence," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 884-915.

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