Thursday, 23 March 2017: 09:40
The sluggish development of corporate lending has remained the central concern of European Union (EU) monetary policy makers as it is considered to seriously hinder the resurgence of growth. This paper looks at the development of loans to large corporations vs small and medium-sized enterprises (SMEs) in the precrisis and post-crisis period. We wish to answer: (i) to what extent do allocated loan volumes actually contribute to output growth? (ii) which factors determine the development of loans, considering loan interest rates above all? and (iii) what causes di fferences in loan interest levels across the euro area (EA)? The results indicate that di fferent loan developments in the EA explain di fferences in output development very well; loans to SMEs contribute even more to output growth than those to large corporations. Loan development itself is negatively influenced by the interest level, which diff ers signi cantly across EA members. Small loans are also always charged an interest premium over large loans. The capitalization of banks, the size of banks, and their internationalization play a role as well. A part of the sluggish growth of loans can be explained by the increasing use of alternative fi nancial instruments by large firms. Interest rates in turn are following the European Central Bank (ECB) interest rate (although this link has become looser in the post-crisis period) and long term government bond rates. Di fferent risks faced by banks and di fferent bank structures have become important explanations for interest rates in the post-crisis period.
Keywords: Corporate lending; Credit market fragmentation; Interest pass-through; bank lending rates; Finance and growth; Euro area;
JEL codes: E40; E43; E44