The Effect of Foreign Bank Entry on the Cost of Credit in Transition Economies. Which Borrowers Benefit the Most?

Hans Degryse (), Olena Havrylchyk (), Emilia Jurzyk and Sylwester Kozak

Working Papers from CEPII research center

Abstract: We employ a unique dataset to study the impact of foreign bank ownership and mode of entry on banks’ lending rates to transparent and opaque borrowers. We find that greenfield banks charge lower lending rates on average and we test for two hypotheses that can explain the lower cost of credit of these institutions: (1) superior performance or (2) different portfolio composition with a focus on more transparent borrowers. Our analysis shows that bank ownership and mode of entry have a large impact on banks’ portfolio composition in terms of borrowers, maturity, and currency. After controlling for these differences, we do not find any impact of foreign bank ownership and mode of entry on lending rates, which is in line with the "portfolio composition hypothesis".

Keywords: Banks; ownership; loan pricing (search for similar items in EconPapers)
JEL-codes: G21 G28 G34 L11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-com and nep-tra
Date: 2008-09
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Persistent link: http://EconPapers.repec.org/RePEc:cii:cepidt:2008-15

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