Foreign bank entry and credit allocation in emerging markets

Transcription

1 Foreign bank entry and credit allocation in emerging markets CAREFIN Conference: Business Models in Banking: Is There a Best Practice? Hans Degryse, Tilburg University and CESIfo (TILEC-AFM Chair on Financial Market Regulation) Olena Havrylchyk, CEPII Emilia Jurzyk, IMF Sylwester Kozak, NBP This paper s findings, interpretations, and conclusions are entirely those of the authors and do not necessarily represent the views of the IMF, its executive directors, or the countries they represent.

2 est Letvia Russia lithuania Belarus Poland Czech Slovakia Ukraine Hungary croatia Romania Serbia Bulgaria

3 Motivation Finance and Credit Conditions are important for growth (see e.g. Levine, 2005) Benefits and Costs of foreign bank ownership: Higher efficiency, profitability, and better risk management techniques (Claessens et al. (2001), Bonin et al. (2005)) Better access to international capital markets, stable loan supply (De Haas and Van Lelyveld, 2006) Focus on large and transparent enterprises Diminished supply of loans to SMEs

4 (Why) are foreign banks different? H1: Performance Berger et al. (2000) Attract all borrowers; both transparent and non-transparent Lower loan rates to all clients H2: Portfolio composition Dell Ariccia and Marquez (2004), Gormley (2007), Sengupta (2007), Berger et al. (2005), Different portfolio of clients: Foreign banks target transparent clients Claeys and Hainz (2007): More so for greenfield than for takeover different maturity/currency (Rodrik and Velasco, 1999; Ortiz- Molina and Penas, 2008, Sorsa et al., 2007)

5 Research questions 1. Do takeover banks and greenfield banks lend more: To transparent clients? Short-term? t In foreign currency? Do any differences between banks disappear over time? 2. When differences in portfolios are accounted for, do interest rates differ? Do any differences disappear over time? 3. What s the direct impact of foreign bank entry on composition and risk of domestic banks portfolios?

6 Related empirical literature and our contribution Related literature employs either Survey data: e.g. De Haas and Nyborg (2006), Clarke et al. (2005) (incomplete coverage) firm level data: e.g. Berger et al. (2001), Mian (2006), Giannetti and Ongena (2008a,b), Bruno and Hauswald (2009) (aggregate) bank-level data: Claeys and Hainz (2007) Contribution: detailed bank-level data including effects of all (groups of) firms borrowing from banks, allowing to study All dimensions of credit allocation Portfolio composition Price Maturity Foreign currency Impacts of different modes of foreign entry on domestic banks

7 Dt Data Balance sheet and quarterly income statements of 110 Polish commercial banks, Dec 96 - Dec 06 o Amount of loans, interest income, NPLs for: transparent t borrowers ( private firms : larger firms; owned by private investors, employ more than 9 employees, subject to more complete accounting procedures) Opaque borrowers ( entrepreneurs : smaller firms; employ less than 9 workers and use simplified accounting procedures o Amount of loans in foreign currency o Amount of loans with different maturities i

8 Descriptive statistics Mean Std. Dev. Share of loans to transparent firms in portfolios of greenfield bank Takeover bank Private domestic bank state-owned bank Share of loans to opaque firms in portfolios of greenfield bank Takeover bank Private domestic bank state-owned bank Share of loans up to 1 year in portfolios of greenfield bank Takeover bank Private domestic bank state-owned bank Share of loans in foreign exchange in portfolios of greenfield bank Takeover bank Private domestic bank state-owned bank G fi ld d t k ll t t t t l t Greenfield and takeover allocate more to transparent, less to opaque Greenfield larger share of loans up to 1 year Greenfield and takeover more fx

9 Descriptive statistics Mean Std. Dev. Lending rate (annualized) Lending rates on loans issued by Greenfield banks Takeover banks State-owned banks Private domestic banks Lending rate on loans to Transparent firms (Private firms) by Greenfield banks by takeover banks by state-owned banks by private domestic banks Opaque firms (Entrepreneurs) by Greenfield banks by takeover banks by state-owned banks by private domestic banks

10 Empirical estimation (1): portfolio allocation Pit ln( ) 0 1Ownershipit 1 2 Bank characteristicsit 1 1 P it Macro Season, 3 t 1 t it Where P it =share in portfolio of bank i at time t Ownership: greenfield, takeover, state-owned dummies Bank characteristics: ROA, CAP, Costs, NPL, Bank Size Macro: Real interest rate, Inflation, real GDP growth Estimation of log-odds ratio by borrower type (private firms (transparent) and entrepreneurs (opaque)) maturity currency

11 Empirical results (1) : borrower type Transp. (Private) Transp. (Private) Opaque (Entrepreneur) Opaque (Entrepreneur) Greenfield 2286*** 2.286*** ** 1143** [0.546] [0.508] Takeover [0.529] [0.336] State-owned [0.374] [0.380] [0.335] [0.331] Greenfield*Before *** *** [0.567] [0.735] Greenfield*After *** [0.594] [0.505] Takeover*Before [0.489] [0.289] Takeover*After [0.608] [0.430] Observations No. of banks R-squared Econ. signif.: compared to private domestic transparent firms: greenfield banks grant 90% more of their portfolio / persistent Opague: greenfield banks grant 25% less of their portfolio / convergence

12 Empirical results (1): maturity Up to 1 year Up to 1 year Over 5 years Over 5 years Greenfield 1.030** ** [0.397] [0.400] 00] Takeover [0.223] [0.458] State-owned ** ** [0.335] [0.336] [0.449] [0.447] Greenfield*Before *** ** [0.438] [0.482] Greenfield*After ** ** [0.402] [0.414] Takeover*Before [0.257] [0.368] Takeover*After [0.228] [0.558] Observations No. of banks R-squared Econ. signif.: compared to private domestic transparent firms: greenfield banks grant 73% more of their portfolio up to 1 year Opague: greenfield banks grant 26% less of their portfolio over 5 years

13 Empirical results (1): currency FX portfolio share FX portfolio share FX portfolio share Greenfield 1.840*** 1.689*** [0.497] [0.481] Tk Takeover [0.579] [0.573] State-owned [0.512] [0.510] [0.503] Greenfield*Before *** [0.482] Greenfield*After *** [0.558] Takeover*Before [0.650] Takeover*After [0.618] Interbank liabilities 1.926*** [0.669] Observations No. of bank R-squared Greenfield have a larger FX portfolio share than private domestic Greenfield effect on FX share is persistent FX portfolio share is larger when interbank liabilities are larger

14 Empirical i estimation i (2): lending rates L it Ownership Market it 1 Structure Bank 2 it 1 Season where L it = lending rate in quarter t characteristics ti t, it it 1 Macro 3 t 1 Ownership: greenfield, takeover, state-owned dummies Portfolio shares Bank characteristics: ROA, CAP, Costs, NPL, Market structure: Market Share, HHI Macro: Real interest rate, Inflation, real GDP growth

15 Empirical results (2): average lending rate Takeover [0.005] [0.005] Greenfield ** [0.004 [0.005] State-owned [0.005] [0.005] [0.005] [0.005] Takeover*Before [0.004] [0.004] Takeover*After [0.007] [0.006] Greenfield*Before ** [0.004] [0.005] Greenfield*After [0.005] [0.005] Share transparent (private) *** *** [0.012] [0.012] Share opaque (entrepreneur) [0.009] [0.009] Observations No. of banks R-squared greenfield charge an annual 3.6% lower rate than private domestic No difference in interest rate once you control for portfolio share All results on interest rates robust to using three-stage fixed effects estimator

16 Empirical results (2): loan rates to transparent firms (private) Private Private Private Private Takeover [0.005] [0.004] [0.004] [0.004] Greenfield [0.005] [0.004] [0.005] [0.005] State-owned ** ** [0.004] [0.004] [0.003] [0.003] FX loans *** *** [0.006] [0.006] Short-term loans [0.011] [0.009] Long-term loans [0.012] [0.010] Observations No. of banks R-squared No difference in loan rates for greenfield and takeover for transparent firms Lower loan rates if share of FX loans is larger

17 Empirical results (2): loan rates to opaque (entrepreneurs) Entrepreneurs Entrepreneurs Entrepreneurs Entrepreneurs Takeover [0.006] [0.005] [0.006] [0.005] Greenfield [0.006] [0.006] [0.006] [0.006] State-owned [0.005] 005] [0.005] 005] [0.005] 005] [0.005] 005] FX loans *** *** [0.005] [0.005] Short-term loans [0.008] [0.007] Long-term loans [0.020] [0.020] Observations No. of banks R-squared No difference in loan rates for greenfield and takeover for opaque firms Lower loan rates if share of FX loans is larger

18 Impact on domestic banks Foreign banks prefer transparent t clients -so what? ht? It s fine, as long as domestic banks lend to SMEs (Detragiache et al., 2008) P i l bl f li li f d i b k Potential problem: portfolio quality of domestic banks may deteriorate (Dell Ariccia and Marquez, 2004)

19 Impact on domestic banks Impact of foreign bank entry on portfolio allocations of domestic banks Domestic private banks tilt their portfolio allocation towards entrepreneurs when greenfield banks increase their portfolio share towards opaque firms (after 2001) portfolio quality of domestic banks Deterioration of portfolio quality: NPL of domestic private banks for both transparent and entrepreneurs increase when all greenfield banks increase their portfolio share in those segments (after 2001); mixed for takeover banks

20 Summing up 1. Do foreign banks lend more: To transparent clients YES for Greenfield Short-term YES for Greenfield In foreign currency? YES for Greenfield Do any differences disappear over time? - ONLY W.R.T. BORROWER TYPE 2. When differences in portfolios are accounted for, do interest rate differ? - NO 3. What s the direct impact of foreign bank entry on composition and risk of domestic banks portfolios? - NEGATIVE FOR GREENFIELD, MIXED FOR TAKEOVER BANKS

21 Domestic banks : portfolio allocations (p-values in brackets) Transp. (Private) Transp. (Private) Opaque (Entrepreneurs) Opaque (Entrepreneurs) State-owned [0.956] [0.966] [0.724] [0.731] Share greenfield ** [0.733] [0.027] Share takeover [0.168] [0.417] Share of greenfield*before [0.545] [0.664] Share of greenfield*after ** [0.700] [0.017] Share of takeover*before [0.129] [0.485] Share of takeover*after [0.903] [0.188] Observations No. of banks R-squared

22 Domestic banks: NPL (p-values in brackets) Transp. Trans. Opaque Opaque (Private) (Private) (Entrepreneurs) (Entrepreneurs) State-owned [0.378] [0.371] [0.755] [0.739] Share greenfield ** [0.347] [0.034] Share takeover * [0.068] [0.905] Share of greenfield*before [0.347] [0.106] Share of greenfield*after *** ** [0.010] [0.038] Share of takeover*before * [0.086] [0.965] Share of takeover*after ** [0.022] 022] [0.287] Observations No. of banks R-squared

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