Bank Ownership Structure, Lending Corruption and the Regulatory Environment

Abstract

We empirically examine whether bank lending corruption is influenced by the ownership structure of banks, a country's regulatory environment and its level of economic development. We find that corruption in lending is higher when state-owned banks or family-owned banks provide a higher proportion of credit to the economy, in both developed and developing countries. A stronger regulatory environment, either through a stronger supervisory regime or a higher quality of external audits, helps to curtail bank lending corruption if induced by family-controlled ownership, but not if induced by state-controlled ownership. We further find that controlled-ownership of banks by other banks contributes to reduce corruption in lending; the same applies to widely-held ownership of banks, but only for developed countries.