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Factors that affect short-term commercial bank lending to developing countries

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  • Gooptu, Sudarshan
  • Martinez Peria, Maria Soledad

Abstract

Developing countries rely on short-term trade credits for imports of several essential consumer goods, including medicines and basic food supplies. The credits also facilitate export-related transactions. The mechanisms commercial banks use to provide trade credits to developing countries are complex and costly. Even a temporary break in the flow of short-term credit can seriously hurt a country's business. But since short-term trade credits can be structured so that they involve a few risks to a bank and at the same time are very costly to the debtor, they are generally the last forms of credit to be cut and the first to be reestablished in debt-distressed developing countries. To gauge the likelihood of continued short-term trade related financial flows to developing countries, the authors examined the factors that affect short-term commercial bank loans. They studied relevant data over time for seven countries for which data were available: Argentina, Brazil, Egypt,India, Kenya, Mexico, and Turkey. They found that : a) countries with greater growth prospects get more short-term credit; b) short-term credits are usually meant to finance countries with significant trade deficits; c) higher levels of external indebtedness are generally coupled with higher levels of short-term indebtedness to commercial banks; and d) country-specific factors affect the volume of short-term lending to a country.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 886.

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Date of creation: 30 Apr 1992
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Handle: RePEc:wbk:wbrwps:886

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Keywords: Financial Intermediation; Banks&Banking Reform; Economic Theory&Research; Strategic Debt Management; Financial Crisis Management&Restructuring;

References

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  1. Huizinga, Harry, 1989. "How has the debt crisis affected commercial banks?," Policy Research Working Paper Series 195, The World Bank.
  2. Cohen, Daniel & Portes, Richard, 1990. "The Price of LDC Debt," CEPR Discussion Papers 459, C.E.P.R. Discussion Papers.
  3. Ozler, Sule, 1991. "Have commercial banks ignored history?," Policy Research Working Paper Series 620, The World Bank.
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Cited by:
  1. Marin, Dalia & Schnitzer, Monika, 2002. "The economic institution of international barter," Munich Reprints in Economics 19260, University of Munich, Department of Economics.
  2. Hector Butts, 2009. "Short Term External Debt and Economic Growth—Granger Causality: Evidence from Latin America and the Caribbean," The Review of Black Political Economy, Springer, vol. 36(2), pages 93-111, June.

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