On Remittances, Foreign Currency Exposure and Credit Constraints: Evidence from Nepal

Nephil Maskay (), Sven Steinkamp () and Frank Westermann

No 5053, CESifo Working Paper Series from CESifo

Abstract: In this paper, we investigate whether foreign currency accounts help overcome credit constraints in developing countries. We analyze a novel bank-level data set from Nepal, where a steady inflow of remittances has contributed to foreign currency deposits on commercial bank balance sheets. In this data set we find that: (i) Banks hedge their FX exposure by investing in FX assets. (ii) Banks also hedge indirectly via their sectoral lending composition: Banks with a large share of FX deposits primarily lend to firms in traded-goods sectors. They lend only little to the non-traded sectors, as well as deprived sectors of the economy that have been targeted by various support programs. While the direct impact of FX accounts on relaxing credit constraints thus appears small, and biased towards specific sectors, there is also a substantial indirect effect via the additional creation of domestic deposits – that benefits all sectors of the economy.

Keywords: foreign currency deposits; sectoral lending; financial development (search for similar items in EconPapers)
JEL-codes: E58 F24 F31 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: On Remittances, Foreign Currency Exposure and Credit Constraints: Evidence from Nepal (2017)
Working Paper: On Remittances, Foreign Currency Exposure and Credit Constraints: Evidence from Nepal (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5053

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