The 'Opaque Glitter' of Small and Medium Sized Businesses in Transition Countries: Are Foreign Banks Interested in SME Lending after All?

38 Pages Posted: 19 Jun 2011

See all articles by Muzaffar Olimjonovich Ahunov

Muzaffar Olimjonovich Ahunov

Endicott College, Woosong University

Leo Van Hove

Vrije Universiteit Brussel (VUB)

Marc Jegers

Free University of Brussels (VUB) - Micro-Economics for Profit and Non Profit Sector (MICE)

Date Written: June 18, 2011

Abstract

We investigate foreign banks’ interest in financing small and medium sized enterprises in Ukraine, a country where massive foreign bank entry took place in a late stage of transition. We use unique, self-collected bank-level data on banks’ involvement with SMEs in 2004, 2006, 2009, and 2010. We find that initially foreign banks were neither less nor more interested in financing SMEs than domestic banks. However, with the surge in foreign-bank presence in 2005-2006, acquired foreign banks started demonstrating a higher involvement with SMEs relative to not only domestic banks, but also to greenfield foreign banks. The mode of entry of foreign banks thus clearly matters. And so does their country of origin: acquired banks from long-standing market economies are more inclined to offer SME-specific products in general, whereas their counterparts from post-socialist countries are more likely to provide loans to SMEs and run SME promotion activities. Overall, our findings are consistent with the recent literature that challenges the conventional wisdom that foreign banks are not interested in lending to SMEs.

Keywords: Access to finance, Foreign banks, Small banks, SMEs, Transition economies

JEL Classification: F36, G21, L11, L14, P27

Suggested Citation

Ahunov, Muzaffar Olimjonovich and Van Hove, Leo and Jegers, Marc, The 'Opaque Glitter' of Small and Medium Sized Businesses in Transition Countries: Are Foreign Banks Interested in SME Lending after All? (June 18, 2011). Available at SSRN: https://ssrn.com/abstract=1866770 or http://dx.doi.org/10.2139/ssrn.1866770

Muzaffar Olimjonovich Ahunov (Contact Author)

Endicott College, Woosong University ( email )

27 Baengnyong-ro 57beon-gil
Jayang-dong, Daejeon
Korea, Republic of (South Korea)

Leo Van Hove

Vrije Universiteit Brussel (VUB) ( email )

Department of Applied Economics (APEC)
Pleinlaan 5
Brussels, B-1050
Belgium
+32 2 614 84 49 (Phone)

HOME PAGE: http://research.vub.ac.be/applied-economics/members

Marc Jegers

Free University of Brussels (VUB) - Micro-Economics for Profit and Non Profit Sector (MICE) ( email )

Brussels
Belgium
+32-2-629 21 13 (Phone)
+32-2-629 22 82 (Fax)

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