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Foreign banks and credit stability: Evidence from Malaysia

This paper aims to examine whether foreign banks lending behavior affects Malaysian credit stability. Thus far, the concern is foreign banks could potentially withdraw from host-country economy or shrink their lending base during economic downturns, leading to an unstable credit environment. Another...

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Main Author: Zakaria, R.H.
Format: Conference or Workshop Item
Language:English
Published: 2008
Subjects:
HG Finance
Foreign exchange. International finance.
Online Access:http://eprints.um.edu.my/8738/1/All.pdf
http://eprints.um.edu.my/8738/
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spelling my.um.eprints.87382014-12-18T05:17:30Z http://eprints.um.edu.my/8738/ Foreign banks and credit stability: Evidence from Malaysia Zakaria, R.H. HG Finance Foreign exchange. International finance. This paper aims to examine whether foreign banks lending behavior affects Malaysian credit stability. Thus far, the concern is foreign banks could potentially withdraw from host-country economy or shrink their lending base during economic downturns, leading to an unstable credit environment. Another argument claims that foreign banks lending preferences could also lead to credit segregation between them and their technology in screening loan applications enables them to have the best borrowers among potential lenders in the sense of lower probability of default as opposed to the domestic banks. Consequently, domestic banks are left with higher risk lending portfolio. Employing traditional financial ratio analysis and standard panel data lending estimation, the findings expose that in the case of Malaysia, foreign banks are credit stabilizer in the sense that their lending cyclicality nature moderated bank lending sensitivity to economic cycles and these is no evidence to claim they contracted their lending during the recent financial crisis. The case for concern, however, lies within the fact that the evidence suggests the credit segregation hypothesis holds true. Foreign banks "cherry pick" loans in the commercial and industrial sector, while their domestic counterparts lending is highly concentrated in the risky real estate loans. 2008 Conference or Workshop Item NonPeerReviewed application/pdf en http://eprints.um.edu.my/8738/1/All.pdf Zakaria, R.H. (2008) Foreign banks and credit stability: Evidence from Malaysia. In: International Conference Business and Economics Societal, 15-19 Jul 2008, Lugano, Switzerland. (Submitted)
institution Universiti Malaya
building UM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Malaya
content_source UM Research Repository
url_provider http://eprints.um.edu.my/
language English
topic HG Finance
Foreign exchange. International finance.
spellingShingle HG Finance
Foreign exchange. International finance.
Zakaria, R.H.
Foreign banks and credit stability: Evidence from Malaysia
description This paper aims to examine whether foreign banks lending behavior affects Malaysian credit stability. Thus far, the concern is foreign banks could potentially withdraw from host-country economy or shrink their lending base during economic downturns, leading to an unstable credit environment. Another argument claims that foreign banks lending preferences could also lead to credit segregation between them and their technology in screening loan applications enables them to have the best borrowers among potential lenders in the sense of lower probability of default as opposed to the domestic banks. Consequently, domestic banks are left with higher risk lending portfolio. Employing traditional financial ratio analysis and standard panel data lending estimation, the findings expose that in the case of Malaysia, foreign banks are credit stabilizer in the sense that their lending cyclicality nature moderated bank lending sensitivity to economic cycles and these is no evidence to claim they contracted their lending during the recent financial crisis. The case for concern, however, lies within the fact that the evidence suggests the credit segregation hypothesis holds true. Foreign banks "cherry pick" loans in the commercial and industrial sector, while their domestic counterparts lending is highly concentrated in the risky real estate loans.
format Conference or Workshop Item
author Zakaria, R.H.
author_facet Zakaria, R.H.
author_sort Zakaria, R.H.
title Foreign banks and credit stability: Evidence from Malaysia
title_short Foreign banks and credit stability: Evidence from Malaysia
title_full Foreign banks and credit stability: Evidence from Malaysia
title_fullStr Foreign banks and credit stability: Evidence from Malaysia
title_full_unstemmed Foreign banks and credit stability: Evidence from Malaysia
title_sort foreign banks and credit stability: evidence from malaysia
publishDate 2008
url http://eprints.um.edu.my/8738/1/All.pdf
http://eprints.um.edu.my/8738/
_version_ 1643688373089468416
score 13.211869

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