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Lending Growth and Cyclicality in Central and Eastern European Banks

Author

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  • Laivi Laidroo

    (Tallinn University of Technology)

Abstract
This paper investigates determinants of lending growth and cyclicality in banks of 15 Central and Eastern European countries during the period of 2004-2010. The results support, as expected, cyclicality in lending growth, but contrary to expectations, the association between GDP growth and lending growth is weaker when economy is below trend than when it is above trend. This result suggests the existence of strong supply-side pressures on lending growth initiated or amplified by large foreign-owned banks prior to the 2008 financial crisis. The same developments may explain lending growth’s unexpected negative association with bank size and positive association with banking market concentration. Coefficients of other macroeconomic and bank-specific variables exhibit the expected signs. However, bank’s equity level, credit risk and size have stronger association with lending growth when the economy is below trend than when it is above, and foreign-ownership matters only when economy is above trend.

Suggested Citation

  • Laivi Laidroo, 2014. "Lending Growth and Cyclicality in Central and Eastern European Banks," TUT Economic Research Series 13, Department of Finance and Economics, Tallinn University of Technology.
    • Handle: RePEc:ttu:tuteco:13
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    File URL: http://www.tutecon.eu/index.php/TUTECON/article/download/13/25
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    Cited by:

    1. Tarvo Vaarmets & Kristjan Liivamägi & Tõnn Talpsepp, 2014. "The brilliant mind of investors," TUT Economic Research Series 15, Department of Finance and Economics, Tallinn University of Technology.
    2. Andre Veski & Kaire Põder, 2015. "Primary School Choice in Tallinn: Data and Simulations," TUT Economic Research Series 20, Department of Finance and Economics, Tallinn University of Technology.
    3. Karin Kondor-Tabun & Karsten Staehr, 2015. "EU Cohesion Policy Funding in Estonia: Background, Developments and Challenges," TUT Economic Research Series 21, Department of Finance and Economics, Tallinn University of Technology.
    4. Kristjan Liivamägi & Tarvo Vaarmets & Tõnn Talpsepp, 2014. "Masters of the Stock Market," TUT Economic Research Series 16, Department of Finance and Economics, Tallinn University of Technology.
    5. Didar Erdinc & Lea Mitic, 2019. "Foreign Bank Penetration and the Bank Lending Channel in Emerging and Developing Countries, 2000-2014," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 7(2), pages 1-18.

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