Foreign Bank Entry and Credit Allocation in Emerging Markets

53 Pages Posted: 26 Oct 2009 Last revised: 16 Dec 2009

See all articles by Olena Havrylchyk

Olena Havrylchyk

CEPII, Centre d'Etudes Prospectives et d'Info. Internationales, Paris; Université Paris Ouest - Nanterre, La Défense - EconomiX

Hans Degryse

KU Leuven - Faculty of Business and Economics (FEB)

Emilia Magdalena Jurzyk

KU Leuven - Centre for Institutions and Economic Performance (LICOS)

Sylwester Kozak

National Bank of Poland; SGGW - Faculty of Economics

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Date Written: October 26, 2009

Abstract

We employ a unique data set containing bank-specific information to explore how foreign bank entry determines credit allocation in emerging markets. We investigate the impact of the mode of foreign entry – greenfield and takeover – on banks’ portfolio allocation to borrowers with different degrees of informational transparency, as well as by maturities and currencies. The impact of foreign entry on credit allocation may stem from the superior performance of foreign entrants (“performance hypothesis”), or reflect borrower informational capture (“portfolio composition hypothesis”). Our results are broadly in line with the theoretical models underpinning the portfolio composition hypothesis, showing that borrower informational capture determines bank credit allocation. In particular, we find that foreign banks that enter via greenfield investment devote a higher share of their portfolios to transparent borrowers, lend more at shorter maturity and in foreign currency. We find few differences between the portfolio composition of takeover and domestic private banks. We also document that there is a significant convergence over time between foreign and domestic banks in terms of groups of borrowers they lend to, while there is no convergence in terms of maturity and currency. Finally, we do not find any impact of bank ownership and mode of entry on lending rates.

Keywords: banks, ownership, credit allocation

JEL Classification: G21, G28, G34, L11

Suggested Citation

Havrylchyk, Olena and Degryse, Hans and Jurzyk, Emilia Magdalena and Kozak, Sylwester, Foreign Bank Entry and Credit Allocation in Emerging Markets (October 26, 2009). Paris December 2009 Finance International Meeting AFFI - EUROFIDAI, Available at SSRN: https://ssrn.com/abstract=1494230 or http://dx.doi.org/10.2139/ssrn.1494230

Olena Havrylchyk (Contact Author)

CEPII, Centre d'Etudes Prospectives et d'Info. Internationales, Paris ( email )

113 rue de Grenelle
Paris, F-75007
France

Université Paris Ouest - Nanterre, La Défense - EconomiX ( email )

200 Avenue de la République
Nanterre cedex, Nanterre Cedex 92000
France

Hans Degryse

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Emilia Magdalena Jurzyk

KU Leuven - Centre for Institutions and Economic Performance (LICOS) ( email )

Waaistraat 6 - box 3511
Leuven, 3000
Belgium

Sylwester Kozak

National Bank of Poland ( email )

00-919 Warsaw
Poland

SGGW - Faculty of Economics ( email )

ul. Nowoursynowska 166
Warsaw, 02-787
Poland

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