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Foreign Currency Loans - Demand or Supply Driven?

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  • Martin Brown
  • Karolin Kirschenmann
  • Steven Ongena

Abstract

Motivated by concerns over foreign currency exposures of banks in Emerging Europe, we examine the currency denomination of business loans made in Bulgaria during the period 2003-2007. We analyze a unique dataset including information on the requested and granted currency for more than hundred thousand loans granted by one bank to sixty thousand different firms. This data set allows us to disentangle demand-side from supply-side determinants of foreign currency loans. We find that 32% of the foreign currency loans disbursed in our sample were actually requested in local currency by the firm. Our analysis suggests that the bank lends in foreign currency, not only to less risky firms, but also when the firm requests a long-term loan and when the bank itself has more funding in euro. These results imply that foreign currency borrowing in Eastern Europe is not only driven by borrowers who try to benefit from lower interest rates but also by banks hesitant to lend longterm in local currency and eager to match the currency structure of their assets and liabilities.

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Bibliographic Info

Paper provided by Swiss National Bank in its series Working Papers with number 2011-02.

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Length: 56 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:snb:snbwpa:2011-02

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Keywords: foreign currency debt; banking;

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References

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Citations

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Cited by:
  1. Hudecz, András, 2012. "Párhuzamos történetek. A lakossági devizahitelezés kialakulása és kezelése Lengyelországban, Romániában és Magyarországon
    [Parallel stories. The development and treatment of household
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 349-411.
  2. Martin Brown & Ralph De Haas, 2012. "Foreign banks and foreign currency lending in emerging Europe," Economic Policy, CEPR & CES & MSH, vol. 27(69), pages 57-98, 01.
  3. Baele, Lieven & Farooq, Moazzam & Ongena, Steven, 2011. "Of Religion and Redemption: Evidence from Default on Islamic Loans," CEPR Discussion Papers 8504, C.E.P.R. Discussion Papers.
  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 & Stix, Helmut, 2013. "Households’ foreign currency borrowing in Central and Eastern Europe," Journal of Banking & Finance, Elsevier, vol. 37(6), pages 1880-1897.
  6. Stephan Barisitz, 2011. "Nonperforming Loans in CESEE – What Do They Comprise?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4.
  7. Hans-Joachim Dübel & Simon Walley, 2010. "Regulation of Foreign Currency Mortgage Loans : The Case of Transition Countries in Central and Eastern Europe," World Bank Other Operational Studies 12943, The World Bank.
  8. Martin Brown & Ralph De Haas, 2010. "Foreign currency lending in emerging Europe: bank-level evidence," Working Papers 122, European Bank for Reconstruction and Development, Office of the Chief Economist.
  9. 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.
  10. Marina Tkalec, 2013. "Monetary Determinants of Deposit Euroization in European Post-Transition Countries," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 60(1), pages 89-101, March.
  11. Brown, Martin & Lane, Philip R., 2011. "Debt overhang in emerging Europe ?," Policy Research Working Paper Series 5784, The World Bank.
  12. Marijana Ivanov & Marina Tkalec & Maruška Vizek, 2011. "The Determinants of Financial Euroization in a Post-Transition Country: Do Threshold Effects Matter?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 61(3), pages 230-251, July.
  13. Gregorio Impavido & Heinz Rudolph & Luigi Ruggerone, 2013. "Bank Funding in Central, Eastern and South Eastern Europe Post Lehman," IMF Working Papers 13/148, International Monetary Fund.

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