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Foreigners vs. Natives : Bank Lending Technologies and Loan Pricing

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  • Beck, T.H.L.

    (Tilburg University, Center For Economic Research)

  • Ioannidou, V.

    (Tilburg University, Center For Economic Research)

  • Schäfer, L.

    (Tilburg University, Center For Economic Research)

Abstract

Can distance-related information asymmetries in credit markets be overcome with contract design and credit scoring models? To answer this question, we explore differences in foreign and domestic banks' credit contract terms and pricing models. Using a sample of firms that borrow from both domestic and foreign banks in the same month, we show that foreign banks are more likely to demand collateral and grant shorter maturity loans than domestic banks. Foreign banks also base their pricing on internal credit ratings and collateral pledges, while domestic banks price according to the length, depth, and breadth of their relationship with a firm. These findings confirm that foreign banks can overcome informational disadvantages using contract design and credit scoring models. However, we also show that there are limitations, with foreign banks facing higher default rates and lower returns on lending if not using collateral and short maturity as disciplining tools.
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Suggested Citation

  • Beck, T.H.L. & Ioannidou, V. & Schäfer, L., 2012. "Foreigners vs. Natives : Bank Lending Technologies and Loan Pricing," Discussion Paper 2012-055, Tilburg University, Center for Economic Research.
    • Handle: RePEc:tiu:tiucen:f7b5aefc-adc0-433f-b52f-60b7bb72c703
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    Cited by:

    1. Manthos D. Delis & Sotirios Kokas & Steven Ongena, 2016. "Foreign Ownership and Market Power in Banking: Evidence from a World Sample," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(2-3), pages 449-483, March.
    2. Gregory F Udell, 2015. "SME Access to Intermediated Credit: What Do We Know and What Don't We Know?," RBA Annual Conference Volume (Discontinued), in: Angus Moore & John Simon (ed.),Small Business Conditions and Finance, Reserve Bank of Australia.
    3. Vasso Ioannidou & Steven Ongena & José-Luis Peydró, 2015. "Monetary Policy, Risk-Taking, and Pricing: Evidence from a Quasi-Natural Experiment," Review of Finance, European Finance Association, vol. 19(1), pages 95-144.
    4. Beck, Thorsten & Degryse, Hans & De Haas, Ralph & van Horen, Neeltje, 2018. "When arm's length is too far: Relationship banking over the credit cycle," Journal of Financial Economics, Elsevier, vol. 127(1), pages 174-196.
    5. Çağatay Bircan & Ralph De Haas, 2020. "The Limits of Lending? Banks and Technology Adoption across Russia," The Review of Financial Studies, Society for Financial Studies, vol. 33(2), pages 536-609.
    6. Thorsten Beck & Hans Degryse & Ralph De Haas & Neeltje van Horen, 2014. "When arm’s length is too far: relationship banking over the business cycle," Working Papers 169, European Bank for Reconstruction and Development, Office of the Chief Economist.
    7. repec:zbw:bofitp:2014_014 is not listed on IDEAS
    8. Kalyvas, Antonios Nikolaos & Mamatzakis, Emmanuel, 2017. "Do creditor rights and information sharing affect the performance of foreign banks?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 50(C), pages 13-35.
    9. Thorsten Beck & Michael Fuchs & Dorothe Singer & Makaio Witte, 2014. "Making Cross-Border Banking Work for Africa," World Bank Publications - Books, The World Bank Group, number 20248, December.
    10. Degryse, Hans & De Haas, Ralph & Beck, Thorsten & van Horen, Neeltje, 2014. "When Arm?s Length Is Too Far. Relationship Banking over the Business Cycle," CEPR Discussion Papers 10050, C.E.P.R. Discussion Papers.
    11. Aadil Nakhoda, 2013. "Bank Competition and Export Diversification," EERI Research Paper Series EERI RP 2013/12, Economics and Econometrics Research Institute (EERI), Brussels.
    12. Bertay, A.C., 2014. "The Transmission of Real Estate Shocks Through Multinational Banks," Other publications TiSEM e7c6196d-b34c-4d95-8c05-c, Tilburg University, School of Economics and Management.
    13. Bernardus Ferdinandus Nazar Van Doornik & Lucio Rodrigues Capelletto, 2015. "Collateral after the Brazilian Creditor Rights Reform," Working Papers Series 404, Central Bank of Brazil, Research Department.
    14. Nazar van Doornik, B.F., 2015. "Essays on the behavior of foreign banks in Brazil," Other publications TiSEM 06586714-3b67-4f84-be4f-3, Tilburg University, School of Economics and Management.
    15. Ralph De Haas & Iman Van Lelyveld, 2014. "Multinational Banks and the Global Financial Crisis: Weathering the Perfect Storm?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(s1), pages 333-364, February.
    16. Beck, Thorsten & Cull, Robert, 2014. "SME finance in Africa," Policy Research Working Paper Series 7018, The World Bank.
    17. Ralph De Haas, 2014. "The dark and bright sides of global banking: a (somewhat) cautionary tale from emerging Europe," Working Papers 170, European Bank for Reconstruction and Development, Office of the Chief Economist.
    18. Steven Ongena & Ibolya Schindele & Dzsamila Vonnak, 2014. "In Lands of Foreign Currency Credit, Bank Lending Channels Run Through? The Effects of Monetary Policy at Home and Abroad on the Currency Denomination of the Supply of Credit," CERS-IE WORKING PAPERS 1424, Institute of Economics, Centre for Economic and Regional Studies.
    19. Ongena, Steven & Schindele, Ibolya & Vonnák, Dzsamila, 2021. "In lands of foreign currency credit, bank lending channels run through?," Journal of International Economics, Elsevier, vol. 129(C).
    20. Kouretas, Georgios P. & Tsoumas, Chris, 2016. "Foreign bank presence and business regulations," Journal of Financial Stability, Elsevier, vol. 24(C), pages 104-116.
    21. Benedikt Barthelmess & Jean Langlois-Berthelot, 2019. "SME Financing in MENA," Post-Print hal-03700216, HAL.
    22. Beck, Thorsten & de Haas, Ralph & Degryse, Hans & Van Horen, Neeltje, 2014. "When Arm’s Length Is Too Far. Relationship Banking over the Business Cycle," CEPR Discussion Papers 10050, C.E.P.R. Discussion Papers.
    23. Beck, Thorsten & de Haas, Ralph & Degryse, Hans & Van Horen, Neeltje, 2014. "When Arm’s Length Is Too Far. Relationship Banking over the Business Cycle," CEPR Discussion Papers 10050, C.E.P.R. Discussion Papers.

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