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Foreign Banks in Transition Economies: Small Business Lending and Internal Capital Markets

  • Ralph de Haas

    (De Nederlandsche Bank)

  • Ilko Naaborg

    (University of Groningen)

On the basis of focused interviews with managers of foreign parent banks and their affiliates in Central Europe and the Baltics, we analyse foreign banks’ small business lending and internal capital markets. This allows us to complement the standard empirical literature, which has difficulty in measuring important variables such as lending technologies and capital allocation systems. 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, we show that local bank affiliates are strongly influenced by the capital allocation and credit steering mechanisms of the parent bank. The credit growth of subsidiaries therefore potentially depends on the financial health of the foreign based parent bank.

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Paper provided by EconWPA in its series International Finance with number 0504004.

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Length: 35 pages
Date of creation: 11 Apr 2005
Date of revision:
Handle: RePEc:wpa:wuwpif:0504004
Note: Type of Document - pdf; pages: 35
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