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

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

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

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.

JEL-codes: E58 F24 F31 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-mac
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https://www.econstor.eu/bitstream/10419/112901/1/VfS_2015_pid_219.pdf (application/pdf)

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 (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc15:112901

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