ورود بانک های خارجی، تخصیص اعتبار و نرخ بهره در بازارهای نوظهور: شواهد تجربی از لهستان

Earlier studies have documented that foreign banks charge lower lending rates and interest spreads than domestic banks. We hypothesize that this may stem from the superior efficiency of foreign entrants that they decide to pass onto borrowers (“performance hypothesis”), but could also reflect a different loan allocation with respect to borrower transparency, loan maturity and currency (“portfolio composition hypothesis”). We are able to differentiate between the above hypotheses thanks to a novel dataset containing detailed bank-specific information for the Polish banking industry. Our findings demonstrate that banks differ significantly in terms of portfolio composition and we attest to the “portfolio composition hypothesis” by showing that, having controlled for portfolio composition, there are no differences in lending rates between banks.

High foreign participation in the emerging banking markets has led to a heated debate on the benefits and costs of foreign bank entry for the stability and efficiency of the banking systems, as well as for borrowers. In this paper we focus on lending rates, which reflect the costs of using the financial system by borrowers. High lending rates can become prohibitive to many safe customers, blocking access to finance and hindering economic growth. Most empirical studies find that foreign banks on average charge lower lending rates and have lower spreads than domestic banks. For instance, Martinez Peria and Mody (2004) study Latin American countries during the late 1990s and find that foreign banks have lower spreads than domestic banks and takeover banks have higher spreads than greenfield banks. Claeys and Hainz (2007) argue that foreign banks can undercut domestic banks’ lending rates owing to their better screening skills. The empirical findings quoted above can have two plausible explanations. On the one hand, foreign banks could charge lower lending rates because they have lower operating costs. There is a considerable evidence that foreign institutions are able to overcome cross-border disadvantages (distance, monitoring costs, differences in institutional environment, language and culture) and operate more efficiently than their domestic competitors in emerging economies (see e.g. Berger et al., 2000, Bonin et al., 2005, Chen and Liao, 2011, Havrylchyk and Jurzyk, 2011 and Weill, 2003). If foreign banks choose to pass on their higher efficiency to borrowers in order to gain market share, this “performance” effect is expected to be identical for all borrowers (“performance hypothesis”).1 It should be stressed that if foreign banks are more efficient than other banks but rely on this cost advantage to extract rents from borrowers instead of charging lower lending rates, we would interpret this as the rejection of the “performance hypothesis”. Alternatively, foreign banks could charge lower lending rates if they supply credit to more transparent and less risky borrowers. Dell’Ariccia and Marquez (2004) argue that foreign banks face large information disadvantages and, thus, prefer to target more transparent clients (relying on transactions-based lending), whereas domestic banks are better placed to lend to firms based on soft information (relationship lending) (see also Althammer and Haselmann, 2011, Detragiache et al., 2008 and Gormley, 2011). Sengupta (2007) shows that foreign entrants exploit their cost advantage by offering collateralized loans to large transparent firms whereas incumbent banks retain more risky borrowers. Even if foreign banks are able to collect soft information, they might have more difficulties or be less willing to communicate it to their headquarters. Stein (2002) argues that organizations with more hierarchical structures are more likely to rely on hard information as opposed to organizations with flatter structures. The reason is that flatter organizations have better control and information on their managers, and thus can afford to give them more discretion, which allows them to use soft information. This modeling has been extended to large banks by Berger et al. (2005) and can further be applied to foreign banks, which belong to large multinational banking groups, and where communication of soft information is obstructed not only by the hierarchy, but also by cultural, institutional and linguistic barriers. Numerous empirical studies support these theories and find that foreign bank lend less to opaque borrowers, such as small and medium enterprises, than domestic banks (Clarke et al., 2005 and Clarke et al., 2006 for Latin America; Berger et al., 2001 and Gormley, 2010 for India; Giannetti and Ongena, 2009 and Giannetti and Ongena, 2012 for Central and Eastern Europe; Mian, 2006 for Pakistan). Credit allocation can also differ in other dimensions. Foreign banks could extend more short-term loans to solve asymmetric information problems as wells as to secure “hot” money that is readily retracted during crises (Rodrik and Velasco, 2000 and Popov and Udell, 2010).2 In addition, foreign banks could supply more foreign currency loans because they rely less on domestic deposits and have better access to the international capital markets and financing from the parent banks (see Brown et al., 2008, Beer et al., 2010, European Central Bank, 2006, Farnoux et al., 2004 and Sorsa et al., 2007). Since loans to transparent borrowers and in foreign currency have lower interest rates than other types of loans, the observed lower lending rate of foreign banks could be easily explained by a different loan allocation (“portfolio composition” hypothesis).3 In our paper, we distinguish between the “performance” and the “portfolio composition” hypotheses and, to the best of our knowledge, this is the first to attempt to do this. We are able to differentiate between the two hypotheses thanks to a unique database on all Polish commercial banks that includes detailed information on several dimensions of credit allocation – lending rates, amounts of loans, and amounts of nonperforming loans to different borrower types and in different currencies and maturities. We think that Poland provides an excellent testing ground for our hypotheses because it has the largest banking sector in Central and Eastern Europe. Since the share of foreign investors in Polish banks amounts to 74%, this provides us with a large number of foreign banks and at the same time leaves us with a much higher number of domestic banks than in most other Central and Eastern European countries (CEECs). Furthermore, as we will argue below, the institutional environment of Poland is close to the average of other emerging markets, and can therefore be considered as representative. We differentiate between greenfield banks (foreign banks that enter via greenfield investment) and takeover banks (foreign banks that acquire an existing domestic institution), because theory suggests that the impact of foreign banks’ behavior depends on their mode of entry (see e.g., Claeys and Hainz, 2007). Indeed, both hypotheses, “performance” and “portfolio allocation”, could be strongest for greenfield banks, because they have a larger efficiency advantage and a larger informational disadvantage relative to domestic and foreign takeover banks. The latter inherit inefficient and non-transparent organizational structure and could be burdened by nonperforming loans, but they also obtain the personnel and access to loan information that may help them overcome informational asymmetries. Our findings can be summarized as follows. We find that portfolio composition of banks in terms of borrower opacity, loan maturity and currency differs significantly depending on bank ownership and mode of entry. Most importantly, having controlled for these differences, foreign banks do not charge lower lending rates than their domestic counterparts. This result contrasts with Martinez Peria and Mody (2004) and Claeys and Hainz (2007) that suffered from omitted variable bias and, thus, were not able to control for the portfolio composition of banks. Finally, we confirm theoretical predictions of Dell’Ariccia and Marquez (2004) that the entry of foreign banks via greenfield investment leads to the reallocation of lending by domestic banks to more opaque borrowers increasing the riskiness of their portfolios. The rest of this paper is organized as follows. Section 2 presents our data. Sections 3 and 4 describe our empirical findings on portfolio allocation and loan rates, respectively. Section 5 deals with the impacts of foreign entry on domestic banks. Section 6 concludes.

Using a unique dataset with detailed information on banks’ portfolios, we explore how foreign bank entry determines credit allocation and lending rates in emerging markets. In particular, using a dataset from Poland, we investigate the impact of the mode of foreign entry—greenfield and takeover—on banks’ lending rates controlling for the loan allocation to borrowers with different degrees of informational transparency, as well as by maturities and currencies. Earlier studies have documented lower lending rates and spreads of foreign entrants, which might stem from their superior efficiency (“performance hypothesis”), but also reflect borrower informational capture (“portfolio composition hypothesis”). Our results are in line with the theoretical models underpinning the portfolio composition hypothesis, showing that informational capture determines bank credit allocation and lending rates (see e.g., Dell’Ariccia and Marquez, 2004 and Sengupta, 2007). Our main results can be summarized as follows. First, we show that the mode of entry is a very important determinant of foreign banks’ portfolio composition. Greenfield banks devote a smaller share of their loan portfolio to opaque firms than domestic banks, whereas this effect is not found for foreign banks that have acquired existing domestic banks. We further find that over time greenfield banks shifted towards more opaque borrowers. These results are consistent with theories arguing that greenfield banks have comparative disadvantages in lending to opaque borrowers using soft information initially, but over time they also become privately informed and start servicing small enterprises. Second, greenfield banks extend more loans in foreign currency, even though this effect disappears after controlling for their better access to foreign currency funding in international capital markets. Moreover, greenfield banks extend less loans at longer maturities, which may reflect their short-term commitment to host economies. Furthermore, we provide some evidence of convergence between greenfield and private banks in terms of currency composition but not in terms of loan maturity. There is no robust evidence that foreign banks that have entered via acquisitions prefer to lend short-term or in foreign currency. Having controlled for these portfolio composition effects, lending rates charged by foreign entrants – greenfield and takeover – to different groups of borrowers (transparent and opaque) do not differ compared to those of other banks. We argue that the result established in the existing literature indicating that the average lending rate of greenfield banks is lower than that of domestic private banks has to be attributed to a different portfolio composition: greenfield banks offer less loans to opaque borrowers that exhibit a higher cost of credit. Finally, a higher participation of greenfield banks has encouraged domestic banks to shift the allocation of their portfolios to more opaque borrowers with negative impacts on riskiness of their loan portfolios, attesting to the segregation effect. Interestingly, the entry of takeover banks has led to an improvement in the loan quality of domestic banks’ loans to transparent firms. This can be interpreted a spillover effects as domestic institutions learn to use transaction-based lending techniques.