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Parent Influence on Loan Pricing by Czech Banks

  • Alexis Derviz
  • Marie Raková

We investigate the influence which the financial condition of a multinational bank group may have on the lending rates of its affiliates, using data from the ten biggest banks in the Czech Republic under foreign control. The analysis is based on a theory of bank lending in which the implicit opportunity costs of lending by a foreign bank affiliate are influenced by the scarcity of funds within the multinational conglomerate. The theory predicts that parent banks´ influence should be stronger in loan segments with more pronounced information asymmetry. Our empirical model, which explains the interest rate charged by the affiliate by means of affi liate-level controls and a parent influence variable, is tested for three categories of commercial non-financial borrowers (domestically owned firms, foreign-owned firms and the self-employed). Evidence of parent influence is found in a limited number of cases of banks and borrower classes for which the constraint on fund flow within the parent bank group is likely to be tight, particularly when the borrower class is of strategic importance for the affiliate´s overall performance.

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Article provided by University of Economics, Prague in its journal Prague Economic Papers.

Volume (Year): 2012 (2012)
Issue (Month): 4 ()
Pages: 434-499

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Handle: RePEc:prg:jnlpep:v:2012:y:2012:i:4:id:433:p:434-499
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