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What determines banks’ customer choice? Evidence from transition countries

  • Ralph De Haas

    ()

    (European Bank for Reconstruction and Development)

  • Daniel Ferreira

    (London School of Economics)

  • Anita Taci

    ()

    (European Bank for Reconstruction and Development)

This paper explores how bank characteristics and the institutional environment influence the composition of banks’ loan portfolios. Using a new data set based on the recent EBRD Banking Environment and Performance Survey (BEPS), which was conducted in 2005 for 220 banks in 20 transition countries, we show that bank characteristics such as ownership and size are important determinants of bank customer focus. In particular, we find that foreign banks are relatively strongly involved in mortgage lending and lending to subsidiaries of foreign companies, while lending relatively less to large domestic firms. We also find that small banks lend relatively more to SMEs than large banks do, while large banks appear to have a comparative advantage in lending to large customers. We do not find much evidence for the hypothesis that better legal credit protection changes bank portfolio composition. An exception is that banks that perceive pledge and mortgage laws to be of high quality focus more on mortgage lending.

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Paper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 104.

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Length: 19 pages
Date of creation: Nov 2007
Date of revision:
Publication status: Published in De Haas, R.T.A., D. Ferreira and A. Taci (2010), What determines the composition of banks' loan portfolios? Evidence from transition countries, Journal of Banking & Finance, 34, 388-398.
Handle: RePEc:ebd:wpaper:104
Contact details of provider: Postal: One Exchange Square, London EC2A 2JN
Web page: http://www.ebrd.com/pages/research/publications/workingpapers.shtml

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