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Loan spreads over the credit cycle

Author

Listed:
  • Er, Tarık Alperen
  • Deniz, Burak
  • Yarba, İbrahim

Abstract

Using novel bank-firm level credit registry data along with financial statements of all incorporated firms, this paper investigates firm heterogeneity in the evolution of loan spreads over the credit cycle in Türkiye. Our results show that small- and medium-sized enterprises (SMEs) and firms that are riskier and more prone to financial frictions pay higher loan interest rates. The results also reveal that loan spreads of these firms decrease and converge to the spreads of large and financially sound firms during expansion periods. Our results suggest that the significant role of firm riskiness on loan spreads weakens during expansion periods. On the other hand, SME loan spreads rise more than those of larger firms during periods of credit tightening. However, this is the case for loans extended by private banks but not state-owned banks. Our findings highlight the mitigating role of state-owned banks that can shield SMEs from asymmetric deterioration in their lending conditions during credit contractions and lend support to policymakers' prudent approaches over the credit cycle.

Suggested Citation

  • Er, Tarık Alperen & Deniz, Burak & Yarba, İbrahim, 2025. "Loan spreads over the credit cycle," Emerging Markets Review, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:ememar:v:67:y:2025:i:c:s1566014125000627
    DOI: 10.1016/j.ememar.2025.101313
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    More about this item

    Keywords

    Bank lending; Loan spreads; Credit cycle; SME lending; Bank ownership; State-owned banks;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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