The Countercyclical Behavior of National Development Banks in Latin America and the Caribbean

ALFREDO SCHCLAREK; MICHAEL BREI

Washington DC

Workshop; The Future of National Development Banks; 2017

Initiative for Policy Dialogue (IPD), Columbia University; CAF; BNDES

This paper investigates empirically the cyclical lending patterns of national development banks. To this purpose, we compare the lending activity of national development banks, across crisis and normal times, with that of public, foreign and domestic private banks using information on the annual financial statements of 336 major banks from 31 Latin American and Caribbean countries over the period of 1995-2014. Using dynamic panel regressions that allow controlling for loan demand and other factors, we find robust evidence that national development and public retail-oriented banks have counteracted the slowdown in the lending activity of private banks during crises by significantly increasing their provision of loans. Our results are particularly important when considering productive lending to the corporate sector. The findings suggest that governments have played an active countercyclical role in their banking systems directly through both national development and retail-oriented public banks. Certainly, national development banks? size, governance structure and financial condition play a key role in determining that the countercyclical response is effective in mitigating the macroeconomic effects of financial turmoil. In addition, iIt is important that special and innovative credit lines are designed in line with the specific needs of companies in times of crisis. Moreover, credit lines for infrastructure projects that increase the countries? productive and export capabilities is also advisable.