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Toolkit for stimulating corporate lending

Author

Listed:
  • Fábián, Gergely
  • Fáykiss, Péter
  • Szigel, Gábor

Abstract

Following the 2009 recession, a turnaround in corporate lending has not occurred in Hungary. Therefore, the risk of the phenomenon known in the literature as a creditless recovery has risen significantly. Based on empirical analyses, a creditless recovery leads to a slower and protracted economic recovery. Moreover, the escalating sovereign debt crisis in the peripheral euro area and banking regulatory responses in the EU may lead to more pronounced credit supply constraints by European banks, which could negatively affect the subsidiaries in the CEE region. The MNB staff has written numerous internal reports on the reasons behind the subdued lending and policy recommendations for reversing this trend. In this paper, we summarize the findings of this background research and review the state’s possible intervention alternatives to boosting corporate lending on both the supply and demand side. We think that the most effective way of intervention is that the public sector assumes partial credit risk from the banking sector, since a contraction in corporate lending can be attributed to credit supply constraints stemming from strong risk aversion by banks, making interest rates cuts ineffective in stimulating demand for loans. At the same time, it is important to note that state interventions involve substantial fiscal costs; simple, cost-free solutions do not exist among the options. Partial credit risk assumption is not an exemption either, as it translates into government expenditures quickly due to loan losses.

Suggested Citation

  • Fábián, Gergely & Fáykiss, Péter & Szigel, Gábor, 2012. "Toolkit for stimulating corporate lending," MPRA Paper 40336, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:40336
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    File URL: https://mpra.ub.uni-muenchen.de/40336/1/MPRA_paper_40336.pdf
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    References listed on IDEAS

    as
    1. Bartoli, Francesca & Ferri, Giovanni & Murro, Pierluigi & Rotondi, Zeno, 2013. "Bank–firm relations and the role of Mutual Guarantee Institutions at the peak of the crisis," Journal of Financial Stability, Elsevier, vol. 9(1), pages 90-104.
    2. Gergely Fábián & András Hudecz & Gábor Szigel, 2010. "Decline in corporate lending in Hungary and across the Central and East European region during the crisis," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 5(3), pages 17-28, October.
    3. Abiad, Abdul & DellAriccia, Giovanni & Li, Bin, 2011. "Creditless Recoveries," CEPR Discussion Papers 8301, C.E.P.R. Discussion Papers.
    4. Gábor P. Kiss, 2011. "Moving target indication: Fiscal indicators employed by the Magyar Nemzeti Bank," MNB Occasional Papers 2011/92, Magyar Nemzeti Bank (Central Bank of Hungary).
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    corporate lending; credit supply constraints; loan guarantee schemes; lending stimulation; state-owned development banks;

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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