Abstract
This paper analyzes the impact of two distinct shocks stemming from the cross-border transmission of the 2007-2009 crisis on credit availability for small firms. The paper uses data from AccessBank Azerbaijan which was affected in its liquidity position during the second and third quarters of 2008 by delays in its refinancing. The Azeri real economy was hit by the global crisis from the fourth quarter of 2008 onwards with a combined decline in oil prices, exports, remittances, and domestic demand. Therefore, a pure supply side shock con be contrasted with a real economy shock that hit exactly when the bank's funding position strengthened again. The paper finds that during the funding shock (potential) borrowers are discouraged from applying for loans. However, for those applications made, the likelihood of loan approval is not affected. The real economy shock, in contrast, reduces the approval likelihood for SME loans in particular, while agro and micro loans are considerably less affected. Finally, bank relationships increase credit availability in good as well as in bad times.
Highlights
The integration and development of emerging countries’ financial systems benefitted them by increased supply of finance and economic growth (e.g. Guiso, Sapienza and Zingales (2004), Bekaert, Harvey and Lundblad (2005) and Giannetti and Ongena (2009))
We can contrast its impact on credit availability for firms of different sizes and industries from the impact of the Real economy shock
Important for our study is that AccessBank Azerbaijan faced a short period of tight refinancing at a time when the economic crisis was still absent from the country, while its refinancing pipeline strengthened again from the fourth quarter of 2008 onwards, i.e. exactly at the time when Azerbaijan’s economy started to slow down
Summary
The integration and development of emerging countries’ financial systems benefitted them by increased supply of finance and economic growth (e.g. Guiso, Sapienza and Zingales (2004), Bekaert, Harvey and Lundblad (2005) and Giannetti and Ongena (2009)). Important for our study is that AccessBank Azerbaijan faced a short period of tight refinancing at a time when the economic crisis was still absent from the country, while its refinancing pipeline strengthened again from the fourth quarter of 2008 onwards, i.e. exactly at the time when Azerbaijan’s economy started to slow down This setting allows us to study how banks react to different shocks coming from the funding vs the real economy side of their business and the mechanisms they have at hand. Turning to the bank’s marketing efforts during this time period, in contrast to the period of tight refinancing, the availability of business loans was explicitly and actively marketed in 2009 to show AccessBank’s ability and willingness to be a reliable partner during the crisis (AccessBank (2009)) Taking all this together, the effect of the real economy shock on the number of loan applications is ambiguous. Our empirical analysis will focus on these two distinct crisis events with the pre-crisis period comprising the years 2006 and 2007
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