Toolkit for stimulating corporate lending
AbstractFollowing the 2009 recession, a turnaround in corporate lending has not occurred in Hungary. Therefore, the risk of the phenomenon known in the literature as a creditless recovery has risen significantly. Based on empirical analyses, a creditless recovery leads to a slower and protracted economic recovery. Moreover, the escalating sovereign debt crisis in the peripheral euro area and banking regulatory responses in the EU may lead to more pronounced credit supply constraints by European banks, which could negatively affect the subsidiaries in the CEE region. The MNB staff has written numerous internal reports on the reasons behind the subdued lending and policy recommendations for reversing this trend. In this paper, we summarize the findings of this background research and review the state’s possible intervention alternatives to boosting corporate lending on both the supply and demand side. We think that the most effective way of intervention is that the public sector assumes partial credit risk from the banking sector, since a contraction in corporate lending can be attributed to credit supply constraints stemming from strong risk aversion by banks, making interest rates cuts ineffective in stimulating demand for loans. At the same time, it is important to note that state interventions involve substantial fiscal costs; simple, cost-free solutions do not exist among the options. Partial credit risk assumption is not an exemption either, as it translates into government expenditures quickly due to loan losses.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 40336.
Date of creation: 2012
Date of revision:
corporate lending; credit supply constraints; loan guarantee schemes; lending stimulation; state-owned development banks;
Find related papers by JEL classification:
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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