The effect of the banking system structure on borrower discouragement: empirical evidence for SMEs from 25 european countries"

Resumen

Understanding the role of the banking sector structure in SME financing has become an urgent priority forEuropean policymakers who are increasingly concerned about the sustainability of these firms. Theconsolidation of the banking sector through a wave of mergers and acquisitions as well as significant foreignbank entry could result in a less friendly banking framework which hampers SME access to finance. Thispaper contributes to shed additional light into this problem by analyzing the association between borrowerdiscouragement and the structure of the banking system using a sample of SMEs from 25 European countries.We find that borrower discouragement decreases as the banking system becomes more concentrated and lesscompetitive, but this effect seems to be limited to those countries with low levels of bank concentration andcompetition. Our results also show that borrower discouragement increases with foreign bank entry, but onlyfor those firms operating in economies with a high share of foreign-owned banks. In addition, when takingthe economic development of the country into account, it turns out that those SMEs operating in pooreconomies might end up being more discouraged and having more limited access to bank financing as aconsequence of increased concentration and foreign entry in the banking market.