Schweizerische Nationalbank · SIX:SNBN
Schweizerische Nationalbank — Foreign Currency Borrowing by Small Firms
16 slides from Schweizerische Nationalbank's investor presentation, Jun 15, 2009
Slide 1: Foreign Currency Borrowing by Small Firms
Foreign Currency Borrowing by Small Firms FX Borrowing By Small Firms Martin Brown, Swiss National Bank Steven Ongena, CentER – Tilburg University & CEPR Pinar Yeşin, Swiss National Bank 6th Annual NBP-SNB Joint Seminar, 15 June 2009
Slide 2: FX Borrowing By Small Firms
FX Borrowing By Small Firms 15.06.2009 2
Slide 3: Motivation
Motivation • FX borrowing in Eastern Europe is mainly retail – residential mortgages – small enterprise credit ⇒ Large share of FX borrowing may be unhedged FX Borrowing By Small Firms ⇒ Limited information on ability to repay FX loans – financial opaqueness of retail borrowers – weak institutions –
Slide 4: Banks and foreign ownership by country
Number of Asset share of Asset share of banks (foreign- foreign-owned state-owned banks owned) banks (%) (%) Bulgaria 29 (21) 82.3 2.1 Croatia 35 (16) 90.4 4.7 Hungary 40 (27) 64.2 3.7 FX Borrowing By Small Firms Latvia 25 (14) 63.8 4.2 Lithuania 14 (6) 91.7 0.0 Poland 64 (54) 75.5 19.5 Romania 31 (
Slide 5: Contribution of the paper
Contribution of the paper • Theoretical: – we enrich existing models of FX borrowing by examining how information asymmetries affect loan currency choice FX Borrowing By Small Firms • Empirical: – examine firm-level and country-level determinants of FX borrowing by 3105 small firms in 26 transition
Slide 6: Foreign currency borrowing by firms: theory
Foreign currency borrowing by firms: theory • Natural hedge, credit cost, and credit risk – foreign currency income of firm (+) – interest rate differential (+) – exchange rate volatility (-) FX Borrowing By Small Firms – firm distress costs (-) (Allayanis, Brown & Klapper, JF 2003 ) • Our contribut
Slide 7: Foreign currency borrowing by firms: evidence
Foreign currency borrowing by firms: evidence • FX borrowing by (large) firms – Kedia & Mozumdar JB 2003 US – Keloharju & Niskannen EFM 2001 Finland – Allayanis, Brown & Klapper, JF 2003 East Asia FX Borrowing By Small Firms – Kamil, IMF 2008 Latin America • Aggregate FX borrowing in Eastern Europe
Slide 8: Data: firm-level loan characteristics
Data: firm-level loan characteristics • World Bank / EBRD firm survey (BEEPS) – representative survey for 26 transition countries – 2005 Survey: 9’098 firms • Information on most recent loan FX Borrowing By Small Firms – 3’105 observations from 26 countries – duration, collateral, interest rate – cu
Slide 9: Forex borrowing by country
Forex borrowing by country Sample average: .25 FX Borrowing By Small Firms 15.06.2009 9
Slide 10: Firm-level explanatory variables (BEEPS)
Firm-level explanatory variables (BEEPS) • Foreign currency income – exporter, sales to multinationals, foreign owner • Distress costs – debt, family firm FX Borrowing By Small Firms • Financial transparency – audited firm, income via bank • Other firm-level variables: – International accounting sta
Slide 11: FX Borrowing By Small Firms
FX Borrowing By Small Firms 15.06.2009 11
Slide 12: Firm-level regression results
Firm-level regression results FX Borrowing By Small Firms 15.06.2009 12
Slide 13: Country-level explanatory variables
Country-level explanatory variables • Monetary conditions – interest differentials to USD / EUR IMF / Basso et al. (ECB 2007) – exchange rate regime / volatility IMF – inflation / inflation volatility IMF FX Borrowing By Small Firms • Transparency – foreign bank presence EBRD – enterprise reform ind
Slide 14: Country-level regression results
Country-level regression results FX Borrowing By Small Firms 15.06.2009 14
Slide 15: Robustness tests
Robustness tests • Firm-level: selection corrected (Heckman) estimations – Selection 1: Firm needs loan – Selection 2: Firm has loan ⇒ no change in firm-level results FX Borrowing By Small Firms • Country-level: regressions by country ⇒ no effect of interest differentials or exchange rate volatility
Slide 16: Summary & conclusion
Summary & conclusion • FX borrowing by small firms is related to – firm-level income structure (FX income) – institutions which affect financial transparency • FX borrowing seems unrelated to FX Borrowing By Small Firms – changes in interest rate differentials – distress costs and financial transpar
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