Impact of foreign bank entry on the credit stability of host countries
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This study investigates lending sensitivity of foreign and domestic banks to crises and business cycles in South Asia. It also studies the credit behaviour of banks in reaction to financial liberalization and deposit structure of banks. The dataset consists of more than 200 banks for the period 2003-2009 from four countries in South Asia, with information on Ownership Structure and Balance Sheet of banks. During crisis, foreign banks credit remains insensitive, while domestic banks emerge as stabilizers. In response to host country macroeconomic fluctuations foreign banks’ credit growth demonstrate positive relationship, but no association has been witnessed in response to home country macroeconomic fluctuations. Finally, financial liberalization and exposure to short term deposits does have a significant impact on lending behaviour of foreign banks.