Bank Funding, Securitization and Loan Terms: Evidence from Foreign Currency Lending

We examine how bank funding and securitization activity affect the currency denomination of business loans. We analyze a unique dataset that for more than hundred thousand loans granted by one Bulgarian bank to over sixty thousand different firms in the period 2003-2007 includes information on the requested and granted currency of the loans. Our findings confirm the conjecture that foreign currency borrowing in Eastern Europe is at least partially driven by banks hesitant to lend long-term in local currency and eager to match the current currency structure of their assets and liabilities as well as of their securitization activities.