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

Ralph de Haas and Ilko Naaborg ()
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Ralph de Haas: De Nederlandsche Bank

International Finance from University Library of Munich, Germany

Abstract: 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.

Keywords: foreign banks; transition economies; small business lending; internal capital markets (search for similar items in EconPapers)
JEL-codes: F23 F36 G21 G31 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec, nep-ent, nep-fin and nep-tra
Date: 2005-04-11
Note: Type of Document - pdf; pages: 35
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpif:0504004

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