Foreign Currency Borrowing by Small Firms

Brown, Martin; Ongena, Steven; Yeșin, Pınar

doi:10.2139/ssrn.1338791

Cited by 12 publications

(20 citation statements)

References 75 publications

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“…In line with recent evidence by Brown et al (2009) we find that interest rate differentials are not positively related to FX lending. On the contrary, we find that banks in countries that saw a sharp decline in interest rate differentials in relation to the euro between 2001 and 2004 expanded their FX lending the most during this period.…”

Section: Introductionsupporting

confidence: 91%

“…On the demand side firms and households will be more likely to request FX loans when interest differentials are high and real exchange rate volatility is low (see for example Brown et al, 2009). Luca and Petrova (2008) examine a model of credit dollarisation in which risk-averse banks and firms choose an optimal portfolio of foreign currency and local currency loans.…”

Section: Theorymentioning

confidence: 99%

“…However, a wide body of evidence suggests that this parity does not hold for many currencies (see for instance Froot and Thaler (1990) or Isard (2006)). Cowan (2006) and Brown et al (2009) consider firms' choices of loan currency in models where the cost of foreign currency debt is lower than the cost of local currency debt. Cowan (2006) shows that firms will be more likely to choose foreign currency debt the higher the interest rate differential, the larger their share of income in foreign currency and the lower their distress costs in case of default.…”

Section: Theorymentioning

confidence: 99%

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Foreign Currency Lending in Emerging Europe: Bank Level Evidence

Brown

Haas

2010

SSRN Journal

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SummaryBased on survey data from 193 banks in 20 countries we provide the first bank-level analysis of the determinants of foreign currency (FX) lending in emerging Europe. We find that FX lending by all banks, regardless of their ownership structure, is strongly determined by the macroeconomic environment. We find no evidence of foreign banks 'pushing' FX loans indiscriminately because of easier access to wholesale funding in foreign currency. In fact, while foreign banks do lend more in FX to corporate clients, they do not do so to retail clients. We also find that after a take-over by a foreign bank, the acquired bank does not increase its FX lending any faster than a bank which remains in domestic hands.

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Section: Introductionsupporting

confidence: 91%

Section: Theorymentioning

confidence: 99%

Section: Theorymentioning

confidence: 99%

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Foreign Currency Lending in Emerging Europe: Bank Level Evidence

Brown

Haas

2010

SSRN Journal

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“…Brown et al (2014) confirm this result using administrative data from one Bulgarian Bank. Brown et al (2011) and Fidrmuc et al (2013) use survey data to provide firmlevel and household-level evidence on the determinants of foreign currency borrowing in Emerging Europe. Hake et al (2014) provide a meta-analysis of studies on the determinants of dollarization in Emerging Europe and Latin America.…”

Section: Evidencementioning

confidence: 99%

The euroization of bank deposits in Eastern Europe

Brown¹,

Stix²

2014

Economic Policy

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SUMMARYIn Central, Eastern and Southeastern Europe a substantial share of bank deposits are denominated in foreign currency. Deposit euroization poses key challenges for monetary policy and financial sector supervision. On the one hand, it limits the effectiveness of monetary policy interventions. On the other hand, it increases financial sector fragility by exposing banks to currency risk or currency-induced credit risk. Policymakers disagree on whether countries in the region should tackle deposit euroization with 'dedollarization' policies or should rather strive to adopt the Euro as their legal tender. Assessing the potential effectiveness of 'dedollarization' policies requires a clear understanding of which households hold foreign currency deposits and why they do so. On the basis of survey data covering 16,375 households in ten countries in 2011 and 2012, we provide a comprehensive household-level analysis of deposit euroization in Central, Eastern and Southeastern Europe. We examine how households' preferences for, and holding of, foreign currency deposits are related to individual expectations about monetary conditions and network effects. We also examine to what extent monetary expectations and deposit euroization are the legacy of past financial crises or the outflow of current policies and institutions in the region. Our findings suggest that deposit euroization in Central, Eastern and Southeastern Europe can be partly tackled by prudent monetary and economic decisions by today's policymakers. The preferences of households for Euro deposits are partly driven by their distrust in the stability of their domestic currency, which in turn is related to their assessment of current policies and institutions. However, our findings also suggest that a stable monetary policy may not be sufficient to deal with the hysteresis of deposit euroization across the region. First, we confirm that the holding of foreign currency deposits has become a 'habit' in the region. Second, we find that deposit euroization is still strongly influenced by households' experiences of financial crises in the 1990s. Our findings question the effectiveness of supply side interventions (e.g. bank regulation) or demand side interventions (e.g. local currency capital market development) in de-euroizing household savings. First, we show that deposit euroization is largely demand driven. Second, we show that households already have access to a broad range of savings products in local currency.

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“…18 On the other hand, Brown, Ongena and Yesin (2011) show for a large firm-survey sample from former transition economies that takers of foreign currency borrowers are better equipped than to bear the corresponding risks than commonly thought. Similarly, Allayannis, Brown and Klapper (2003) do not find that unhedged foreign currency positions had a negative impact on firm performance during the East Asian crisis of 1997.…”

mentioning

confidence: 99%

Bank Financing for SMEs – Lessons from the Literature

Beck

2013

Natl. Inst. econ. rev.

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This is the accepted version of the paper.This version of the publication may differ from the final published version. Abstract: This paper surveys the recent literature on the relationship between SMEs, financial deepening and economic development. While a large SME sector is not associated with faster economic growth or poverty alleviation, financial deepening can have a progrowth and pro-poor impact by disproportionally alleviating SMEs' financing constraints, enabling new entry of firms and entrepreneurs, and better resource allocation. It is important to differentiate between different segments of the SME population, most critically between subsistence micro entrepreneurs and transformational entrepreneurs. There is strong evidence that long-term institution building, including contractual and information frameworks, contribute to easing SMEs' financing constraints, with supportive evidence for specific policy interventions. There is no unambiguous evidence on the relationship between market structure and SMEs' access to finance. Foreign-owned and larger banks are as likely to cater to SMEs as smaller and local banks, but using different lending techniques and where the necessary institutional framework is in place in the country. There is also evidence that SMEs are more strongly affected by banking crises and that regulatory policies have important repercussions for SME lending. Permanent repository link:

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Foreign Currency Borrowing by Small Firms

Cited by 12 publications

References 75 publications

Foreign Currency Lending in Emerging Europe: Bank Level Evidence

Foreign Currency Lending in Emerging Europe: Bank Level Evidence

The euroization of bank deposits in Eastern Europe

Bank Financing for SMEs – Lessons from the Literature

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