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Foreign banks in transition countries. To whom do they lend and how are they financed?

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  • De Haas, Ralph
  • Naaborg, Ilko

Abstract

We use focused interviews with managers of foreign parent banks and their affiliates in Central Europe and the Baltic States to analyse the small-business lending and internal capital markets of multinational financial institutions. Our approach allows us to complement the standard empirical literature, which has difficulty in analysing important issues such as lending technologies and capital allocation. We find that the acquisition of local banks by foreign banks has not led to a persistent bias in these banks’ credit supply towards large multinational corporations. Instead, increased competition and the improvement of subsidiaries’ lending technologies have led foreign banks to gradually expand into the SME and retail markets. Second, it is demonstrated that local bank affiliates are strongly influenced by the capital allocation and credit steering mechanisms of the parent bank.

Suggested Citation

  • 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.
  • Handle: RePEc:pra:mprapa:6320
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    More about this item

    Keywords

    foreign banks; transition economies; small-business lending; internal capital markets;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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