Is Lending by Polish Cooperative Banks Procyclical?

We investigate the lending cyclicality of Polish cooperative banks. Cooperative banks have an important role in the financing of the local economy and as such can contribute to amplify or moderate business cycles through their lending behavior. We use a rich dataset of 367 Polish cooperative banks over the period 2007-2013. We find that cooperative banks have a countercyclical lending behavior on the country level, with loan growth negatively linked to national business cycles. We observe that greater bank size contributes to reduce the countercyclical lending behaviour. The lending behavior of cooperative banks is also sensitive to local economic conditions, with some evidence for procyclicality versus the regional economy. Finally, we point out differences in cyclicality of lending across types of borrowers. Loans to non-financial clients and to banks are countercyclical, while we find procyclicality for loans to local government and public entities. These findings support the view that the cooperative banking sector should be preserved to mitigate bank lending procyclicality, usually observed in commercial banks.