Abstract
This paper analyses the role of real estate markets and foreign-owned banks in bank credit growth in Croatia from 1999 to 2008 by applying panel data analysis. This paper gives a more profound explanation of host countries’ variables influencing bank orientation towards housing credit in the home county. We explain the channel through which the foreign-owned banks can facilitate domestic demand for housing and push the housing bubble, motivated by determinants outside the host country. Our results suggest that foreign-owned banks’ orientation to real estate markets increased credit supply to all private sectors in Croatia during the credit boom in 1999–2008.
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Notes
- 1.
The housing credit is a homogeneous product, and Croatian banks collect the funds for its financing from the same market as the banks in the eurozone. In addition, the competition in the Croatian market is similar to the EU markets. Therefore, we can state that interest rates differential can be used as a good proxy of banks’ perception of systematic risk in Croatia.
- 2.
The results for the Sargan test indicate the validity of the chosen instruments. The AR (2) test rejects the existence of autocorrelation in the second order of differenced residuals. The AR (1) test results indicate the presence of autocorrelation in the first order of differenced residuals.
- 3.
The ratio of external bank liabilities to the total bank asset (BankExternalFunding) is used due to the high correlation between ShareExternalFunding and ExternalFunding variables.
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Smiljanić, A.R., Perić, B.Š. (2022). Foreign-Owned Banks and Real Estate Markets in Croatia: A Panel Data Analysis. In: Olgić Draženović, B., Buterin, V., Suljić Nikolaj, S. (eds) Real and Financial Sectors in Post-Pandemic Central and Eastern Europe. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-030-99850-9_5
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