How Do Foreign Banks Affect Firms’ Access to Credit?

Abstract

In Chapter 8, we examined how foreign bank entry in EMEs has generally been associated with fostering greater operational efficiency in the domestic banking system mainly through the introduction of new technologies and banking products as well as facilitating a reduction in cost structures. In general, there is evidence to show that foreign banks contribute to reduced costs of financial intermediation resulting in greater credit availability facilitating overall financial development (Claessens et al., 2001). But at the same time, there is greater ambiguity about the relationship between foreign bank entry and firms’ access to credit in EMEs (Clarke et al, 2006).