nr 050 - Does Foreign Bank Entry Reduce Small Firms´ Access to Credit? Evidence from European Transition Economies

DNB Working Papers
Date 15 August 2005

On the basis of focused interviews with managers of foreign parent banks and their affiliates in Central Europe and the Baltic States, the development of small-business lending by foreign banks is analysed. Our approach allows us to complement the standard empirical literature, which has difficulty in analysing qualitative issues such as the role of changing lending technologies. It is found 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. Keywords: foreign banks, transition economies, small-business lending JEL classification: F23, F36, G21