Effects of State-Owned Banks’ Programs to Stimulate Credit: evidence from Brazil by Emerson Erik Schmitz published by Banco Central (3/2020).
“This paper examines the impact of two programs carried out by Brazilian federal banks aimed at ameliorating credit conditions and expanding access to credit to individuals and SMEs. These initiatives involve the raise of credit limits, extension of loan terms and the reduction of lending rates to targeted borrowers. I study the consequences of these credit policies on banks’ risk-taking behavior and credit allocation in the corporate credit market. I document that federal banks increase credit operations relatively more with small firms all over the country, especially in Brazilian states with lower economic output, although loading more risky firms to their portfolios. In response to federal banks’ programs, foreign banks enlarge the provision of credit to less risky small firms in Brazilian states with higher economic output, consistently with a “cherry-picking” behavior, while private domestic banks focus on keeping safer and profitable credit operations, increasing their market share in the large firms’ segment. Overall, my findings suggest that federal banks’ initiatives to expand the access to credit in Brazil have a significant impact on the credit allocation to SMEs and indirect effects on the credit allocation to larger firms.”
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