Bank Ownership Structure, SME Lending and Local Credit Markets

Abstract

In this paper, by employing a novel approach, we study the relationship between bank type and small-business lending in a post-transition country. Using a unique dataset on bank branches and firm-level data, we find that local cooperative banks lend more to small businesses than do large domestic banks and foreign-owned banks, even when controlling for the financial situation of the cooperative banks. Additionally, our results suggest that cooperative banks provide loans to small businesses at lower costs than foreign-owned banks or large domestic banks. Finally, we show that small and medium-sized firms perform better in counties with a large number of cooperative banks than in counties dominated by foreignowned banks or large domestic banks. Our results are important from a policy perspective, as they show that foreign bank entry and industry consolidation may raise valid concerns for small firms in developing countries.

The economic impact of changes in local bank presence

“…We find that bank branch expansion, regardless of the bank type, exerted a positive and direct influence on the local labour market. In line with the previous findings by Hasan, Jackowicz, Kowalewski, Kozłowski (2014), we show that changes that strengthen the position of local cooperative banks and presumably privilege the use of the relationship banking model had positive consequences not only on employment but also on SMEs' access to debt and investment. In contrast, the increase in the number of large commercial banks within local markets, that probably stimulates the application of the transactional banking model, was associated with slower long-term debt growth for SMEs.…”

“…and the existing evidence for the Polish market (Hasan et al, 2014). We show that changes that favour the application of the relationship banking model and the use of soft information in the lending process are beneficial to the local economy.…”

Is collective financing feasible for small and micro-sized enterprises? An evolutionary game analysis of the credit market in China

“…This kind of relationship loan, which is established by trust, usually uses 'soft information' for credit review. For example, joint-stock banks can obtain 'soft information' by asking corporate customers, enterprise suppliers, or business partners to lend to small and medium-sized enterprise, thus providing lower loan costs for small and medium-sized enterprise, therefore, such banks are more important for small and medium-sized enterprise in post-transition economies (Bartoli, Ferri, Murro, & Rotondi, 2013), however, large banks and foreign banks will not adopt 'hard information' technologies such as small business rating technology or fixed asset evaluation technology to carry out trading technical loans for small enterprises (Hasan, Jackowicz, Kowalewski, & Kozłowski, 2014). However, small mediumsized enterprise trading technical loans are not without advantages, and small medium-sized enterprise that obtain loans by means of fixed asset mortgages also have an advantage in terms of loan interest rates (Huo, Feng, & Liu, 2015).…”

Exploring the Determinants of Crowdfunding: The Influence of the Banking System

“…This also generally leads to good liquidity and sound asset quality. It is thus not surprising to verify that cooperative banks are often more sensitive than commercial banks to the financial needs of SMEs (Canales and Nanda, 2012;Hasan et al, 2014). Since the importance of cooperative banks differs substantially among the different EU member states, looking at the positioning of these financial institutions on a PCA representation might give us further evidence of how national banking systems are related to the heterogeneous development of crowdfunding at country level.…”