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The drivers of foreign bank lending in Central and Eastern Europe: The roles of parent, subsidiary and host market traits

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  • Temesvary, Judit
  • Banai, Adam

Abstract

We analyze the relative roles of subsidiary and parent banking group traits in driving foreign banks’ lending patterns in the Central and Eastern European (CEE) region before and during the crisis. We use a bank-level dataset on Western European banking groups and their CEE subsidiaries over the 2002–2013 period. We find that lower capital-to-asset ratios and higher non-performing loans (NPL) ratios at either the subsidiary or the parent bank level significantly lowered subsidiary lending growth before and during the crisis. The onset of the crisis not only lowered subsidiary lending growth in the CEE countries, but also has altered the relationship between balance sheet conditions and lending growth. However, we also find strong evidence that this crisis effect is significantly less pronounced for subsidiaries participating in the Vienna Initiative. Our results’ policy implications include purging banks of NPLs, enhanced regulatory coordination and the inclusion of parent bank traits in countercyclical capital buffer calculations.

Suggested Citation

  • Temesvary, Judit & Banai, Adam, 2017. "The drivers of foreign bank lending in Central and Eastern Europe: The roles of parent, subsidiary and host market traits," Journal of International Money and Finance, Elsevier, vol. 79(C), pages 157-173.
  • Handle: RePEc:eee:jimfin:v:79:y:2017:i:c:p:157-173
    DOI: 10.1016/j.jimonfin.2017.08.005
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    References listed on IDEAS

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    Cited by:

    1. Małgorzata Iwanicz-Drozdowska & Paola Bongini & Paweł Smaga & Bartosz Witkowski, 2019. "The role of banks in CESEE countries: exploring non-standard determinants of economic growth," Post-Communist Economies, Taylor & Francis Journals, vol. 31(3), pages 349-382, May.
    2. Lorenz Emter & Martin Schmitz & Marcel Tirpák, 2019. "Cross-border banking in the EU since the crisis: What is driving the great retrenchment?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 155(2), pages 287-326, May.
    3. Nor Faezah Ghazi Ahmad & Nor Aiza Mohd Zamil & Rohaida Basiruddin & Sarah Athirah Saruchi, 2019. "The Ownership Structure, Capital and Bank Lending in Times of Crisis: Islamic Banks versus Conventional Banks," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 9(3), pages 150-159, July.
    4. Takáts, Előd & Temesvary, Judit, 2020. "The currency dimension of the bank lending channel in international monetary transmission," Journal of International Economics, Elsevier, vol. 125(C).
    5. Makram El-Shagi & Kiril Tochkov, 2020. "Shadow of the Colossus: Euro Area Spillovers and Monetary Policy in Central and Eastern Europe," CFDS Discussion Paper Series 2020/7, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.
    6. McCauley, Robert N. & Bénétrix, Agustín S. & McGuire, Patrick M. & von Peter, Goetz, 2019. "Financial deglobalisation in banking?," Journal of International Money and Finance, Elsevier, vol. 94(C), pages 116-131.
    7. Marianna Endrész, 2020. "The bank lending channel during financial turmoil," MNB Working Papers 2020/5, Magyar Nemzeti Bank (Central Bank of Hungary).
    8. Everett, Mary & McQuade, Peter & O’Grady, Michael, 2020. "Bank business models as a driver of cross-border activities," Journal of International Money and Finance, Elsevier, vol. 108(C).
    9. Škrabić Perić, Blanka & Rimac Smiljanić, Ana & Aljinović, Zdravka, 2018. "Credit risk of subsidiaries of foreign banks in CEE countries: Impacts of the parent bank and home country economic environment," The North American Journal of Economics and Finance, Elsevier, vol. 46(C), pages 49-69.
    10. Skała, Dorota, 2020. "Shareholder shocks and loan loss provisions in Central European banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 69(C).

    More about this item

    Keywords

    Bank lending flows; Foreign banks; Financial crises; Bank-level data; Cross-country analysis;

    JEL classification:

    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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