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Foreign banks in transition countries. To whom do they lend and how are they financed?

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  • De Haas, Ralph
  • Naaborg, Ilko

Abstract

We use focused interviews with managers of foreign parent banks and their affiliates in Central Europe and the Baltic States to analyse the small-business lending and internal capital markets of multinational financial institutions. Our approach allows us to complement the standard empirical literature, which has difficulty in analysing important issues such as lending technologies and capital allocation. We find that the acquisition of local banks by foreign banks has not led to a persistent bias in these banks’ credit supply towards large multinational corporations. Instead, increased competition and the improvement of subsidiaries’ lending technologies have led foreign banks to gradually expand into the SME and retail markets. Second, it is demonstrated that local bank affiliates are strongly influenced by the capital allocation and credit steering mechanisms of the parent bank.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6320.

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Date of creation: 2006
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Publication status: Published in Financial Markets, Institutions & Instruments 4.15(2006): pp. 159-199
Handle: RePEc:pra:mprapa:6320

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Keywords: foreign banks; transition economies; small-business lending; internal capital markets;

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