The Effect of Foreign Bank Entry on the Cost of Credit in Transition Economies. Which Borrowers Benefit the Most?
We employ a unique dataset to study the impact of foreign bank ownership and mode of entry on banks’ lending rates to transparent and opaque borrowers. We find that greenfield banks charge lower lending rates on average and we test for two hypotheses that can explain the lower cost of credit of these institutions: (1) superior performance or (2) different portfolio composition with a focus on more transparent borrowers. Our analysis shows that bank ownership and mode of entry have a large impact on banks’ portfolio composition in terms of borrowers, maturity, and currency. After controlling for these differences, we do not find any impact of foreign bank ownership and mode of entry on lending rates, which is in line with the "portfolio composition hypothesis".
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