Bank Lending, Credit Growth and the Financial Crisis

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Journal
Number 2
Article
Bank Lending, Credit Growth and the Financial Crisis – The Belgian Case

Year 2014 Volume 2014 Number 2 Page 158 Language English Court Reference K. SMEDTS e.a., “Bank Lending, Credit Growth and the Financial Crisis – The Belgian Case”, BFW 2014, nr. 2, 158-166 Recapitulation This article analyzes whether international banking integration has made Belgium more or less resilient to financial shocks. We study the monthly growth in lending financed by banks located in Belgium over the period 1999-2011. We focus on differences in lending behavior between home and foreign owned institutions, and on differences between large and small institutions in the period until the crisis of 2008, during the crisis and thereafter. The data suggest that in the boom years before 2008 foreign banks expanded their credit growth more than home banks; however the situation reversed during the crisis of 2008-2009, with foreign owned banks slowing down credit growth faster than home owned banks. Also large banks slowed down credit growth more as compared to the small banks during the crisis period. However in the post-crisis period credit growth of large banks bounced back to its pre-crisis levels. A similar rebounce can be observed for the credit growth of foreign banks, though their growth rates remain below those of the pre-2008 period. While the internationalization of the Belgian banking system has likely contributed to serving the financing demands of Belgian residents/organizations before the financial crisis, the study indicates that the strengthening of home bias preferences in times of crisis enhances pro-cyclicality in credit growth. Hence the importance of having locally anchored banks.

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