SMES and Bank Lending Relationships: The Impact of Mergers

Abstract

This paper studies the impact of bank mergers on firm-bank lending relationships using information from individual loan contracts in Belgium. We analyse the effects of bank mergers on the probability of borrowers maintaining their lending relationships and on their ability to continue tapping bank credit. The Belgian financial environment reflects a number of interesting features: high banking sector concentration; "in-market" mergers with large target banks; importance of large banks in providing external finance to SMEs; and low numbers of bank lending relationships maintained by SMEs. We find that bank mergers generate short-term and longer-term effects on borrowers' probability of losing a lending relationship. Mergers also have heterogeneous impacts across borrower types, including borrowers of acquiring and target banks, borrowers of differing size, and borrowers with single versus multiple relationships. Firms borrowing from acquiring banks are less likely to lose their lending relationship, while target bank borrowers are more likely to lose their relationship. Overlap borrowers -borrowing from two of the merging banks -are less likely to lose their relationship than firms borrowing from only one of the merging banks or firms borrowing from nonmerging banks.

How Have Borrowers Fared in Banking Megamergers?

“…A relationship customer is one that enjoys a history of successful contacts with a bank. Following Belgian bank mergers, Degryse, Masschelein and Mitchell (2003) find that target customers are more likely than acquirer customers to have their relationships terminated with their bank. These effects are more pronounced for smaller customers with no alternate lending relationships.…”

Bank Mergers, REIT Loan Pricing and Takeover Likelihood

“…Karceski et al (2005) examine the impact of bank consolidation on commercial borrower welfare and find that bank mergers affect target-bank borrowers and acquiring-bank borrowers differently. Degryse et al (2005) show that bank mergers lead to higher termination rates of banking relationships among borrowers of target banks than those borrowers of acquiring banks. Erel (2006) finds evidence that in some cases borrowers benefit from lower borrowing costs based on the type of borrower and the type of merger.…”

Financiële integratie en kredietverlening aan MKB’s

“…Wanneer een bankfusie uitmondt in een gewijzigd leengedrag van de overgenomen bank, kan het nieuwe, post-fusie leningsbeleid leners vertrouwd met het voorheen heersende systeem verwarren of ontevreden stemmen. Degryse, Masschelein en Mitchell (2005) analyseren bijvoorbeeld Belgische bankfusies en stellen inderdaad dat (1) kredietnemers van de overgenomen banken met grotere waarschijnlijkheid hun verbintenis stopzetten en (2) dat de kredietbeschikbaarheid voor leners, die enkel een relatie hebben met de overgenomen bank en bij die bank blijven, negatief beïnvloed wordt. In de volgende subparagraaf bestuderen we de langetermijneff ecten van consolidatie.…”