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Foreign currency lending in emerging Europe: bank-level evidence

  • Martin Brown

    (Swiss National Bank, Tilburg University)

  • Ralph De Haas

    (EBRD)

Based on survey data from 193 banks in 20 countries we provide the first bank-level analysis of the determinants of foreign currency (FX) lending in emerging Europe. We find that FX lending by all banks, regardless of their ownership structure, is strongly determined by the macroeconomic environment. We find no evidence of foreign banks ‘pushing’ FX loans indiscriminately because of easier access to wholesale funding in foreign currency. In fact, while foreign banks do lend more in FX to corporate clients, they do not do so to retail clients. We also find that after a take-over by a foreign bank, the acquired bank does not increase its FX lending any faster than a bank which remains in domestic hands.

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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 122.

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Length: 32 pages
Date of creation: Dec 2010
Date of revision:
Handle: RePEc:ebd:wpaper:122
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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  1. Degryse, H.A. & Havrylchyk, O. & Jurzyk, E. & Kozak, S., 2009. "Foreign Bank Entry and Credit Allocation in Emerging Markets," Discussion Paper 2009-94, Tilburg University, Center for Economic Research.
  2. Joe Peek & Eric S. Rosengren, 1997. "Bank consolidation and small business lending: it's not just bank size that matters," Working Papers 97-1, Federal Reserve Bank of Boston.
  3. Nicolo, Gianni De & Honohan, Patrick & Ize, Alain, 2005. "Dollarization of bank deposits: Causes and consequences," Journal of Banking & Finance, Elsevier, vol. 29(7), pages 1697-1727, July.
  4. Luca, Alina & Petrova, Iva, 2008. "What drives credit dollarization in transition economies?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 858-869, May.
  5. Romain Rancière & Aaron Tornell & Athanasio Vamvakidis, 2010. "Currency Mismatch and Systemic Risk in Emerging Europe," PSE - G-MOND WORKING PAPERS halshs-00967419, HAL.
  6. Enrica Detragiache & Poonam Gupta & Thierry Tressel, 2006. "Foreign Banks in Poor Countries; Theory and Evidence," IMF Working Papers 06/18, International Monetary Fund.
  7. N. Berger, Allen & F. Udell, Gregory, 1998. "The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 613-673, August.
  8. Mian, Shehzad L., 1996. "Evidence on Corporate Hedging Policy," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 31(03), pages 419-439, September.
  9. Martin Brown & Karolin Kirschenmann & Steven Ongena, 2011. "Foreign Currency Loans - Demand or Supply Driven?," Working Papers 2011-02, Swiss National Bank.
  10. Carlos O. Arteta, 2002. "Exchange rate regimes and financial dollarization: does flexibility reduce bank currency mismatches?," International Finance Discussion Papers 738, Board of Governors of the Federal Reserve System (U.S.).
  11. Goswami, Gautam & Shrikhande, Milind M., 2001. "Economic exposure and debt financing choice," Journal of Multinational Financial Management, Elsevier, vol. 11(1), pages 39-58, February.
  12. Christian Beer & Steven Ongena & Marcel Peter, 2008. "Borrowing in Foreign Currency: Austrian Households as Carry Traders," Working Papers 2008-19, Swiss National Bank.
  13. Benavente, Jose Miguel & Johnson, Christian A. & Morande, Felipe G., 2003. "Debt composition and balance sheet effects of exchange rate depreciations: a firm-level analysis for Chile," Emerging Markets Review, Elsevier, vol. 4(4), pages 397-416, December.
  14. Martinez, Lorenza & Werner, Alejandro, 2002. "The exchange rate regime and the currency composition of corporate debt: the Mexican experience," Journal of Development Economics, Elsevier, vol. 69(2), pages 315-334, December.
  15. Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
  16. repec:hal:psewpa:halshs-00967419 is not listed on IDEAS
  17. Havrylchyk, Olena & Jurzyk, Emilia, 2011. "Inherited or earned? Performance of foreign banks in Central and Eastern Europe," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1291-1302, May.
  18. De Haas, Ralph & Naaborg, Ilko, 2006. "Foreign banks in transition countries. To whom do they lend and how are they financed?," MPRA Paper 6320, University Library of Munich, Germany.
  19. Romain Ranciere & Aaron Tornell & Athanasios Vamvakidis, 2010. "Currency mismatch, systemic risk and growth in emerging Europe," Economic Policy, CEPR;CES;MSH, vol. 25, pages 597-658, October.
  20. George Allayannis & Gregory W. Brown & Leora F. Klapper, 2003. "Capital Structure and Financial Risk: Evidence from Foreign Debt Use in East Asia," Journal of Finance, American Finance Association, vol. 58(6), pages 2667-2710, December.
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