Explaining the Differences between Local Currency versus FX-denominated Loans and Deposits in the Central-Eastern European Economies

Judit Temesvary

No 1405, CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: Foreign currency-based loans and deposits became very popular in Central-Eastern European countries (CEECs) over the 2000-2011 period. This paper employs a structural approach to simultaneously examine the demand-side (consumer-related) and supply-side (bank-related) determinants of the quick spread of FX-based banking. The econometric analysis uses a unique newly constructed dataset on FX and domestic currency loans, deposits and interest rates, covering 16 CEECs overtime. Results show that deregulation and cheap funding from parents abroad helped fuel FX lending. There is substantial heterogeneity across market segments, currencies and maturities. Corporate sector FX lending is fundamentally different from retail and mortgage markets.

Keywords: Bank lending; Interest rate choices; Discrete choice; Simultaneous equations; Cross-country analysis (search for similar items in EconPapers)
JEL-codes: E44 F31 G21 G28 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2014-01
New Economics Papers: this item is included in nep-dcm, nep-eur, nep-mac, nep-mon and nep-tra
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