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The cost of foreign-currency lending

Author

Listed:
  • Manthos Delis

    (Montpellier Business School - Montpellier Business School)

  • Panagiotis N. Politsidis

    (Audencia Business School)

  • Lucio Sarno

    (Cambridge Judge Business School)

Abstract

Lending to corporates in foreign currencies can expose banks to substantial currency risk. Using global syndicated loan data, we find that a one-standard-deviation increase in exchange rate volatility increases loan spreads somewhere in the range between 5.5 and 16.1 basis points for loans made in a currency different from the lenders’. This implies excess interest of approximately 1 to 3 USD million for loans of average size and duration. We also show that this finding is mostly attributed to credit constraints and deviations from perfect competition in international lending markets, and that borrowers can lower the extra cost by forming strong lending relationships with their banks.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Manthos Delis & Panagiotis N. Politsidis & Lucio Sarno, 2022. "The cost of foreign-currency lending," Post-Print hal-03534083, HAL.
    • Handle: RePEc:hal:journl:hal-03534083
    DOI: 10.1016/j.jbankfin.2021.106398
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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