Supply Side Determinants of Loan Dollarization: Micro-Data Evidence from Armenia

This paper examines supply-side determinants of foreign currency loan issuance in the Armenian banking sector using a loan-level credit registry dataset spanning 2003-2024 - one of the longest single-country microdata samples in this literature. We estimate a binary logit model with bank and year fixed effects separately for mortgage and business loan segments, testing three sub-hypotheses derived from the balance sheet matching channel alongside the local currency-USD interest rate differential as the primary demand-side variable. The FX liability share emerges as the most robust supply-side determinant, positive and highly significant across both segments and all lag regimes in the full sample and the 2012–2019 financial deepening period, consistent with the balance sheet matching channel. However, this channel collapses in the 2019-2024 sub-period following a structural shift in capital flows. Evidence on asset growth and relative bank size is more heterogeneous and segment-dependent. The local currency-USD differential is significant for mortgage but not business loans, suggesting that funding structure is more closely associated with corporate FX lending than price-based incentives. Results are robust across alternative specifications and lag regimes for the pre-2019 period.