Relationship Lending in Emerging Markets: Evidence from the Czech Republic

This paper focuses on how firms obtain financing from domestic banks, using a unique loan-level data set for the Czech Republic. The results show that the vast majority of firms use the services of just one relationship lender. Small and young firms in technology- and knowledge-intensive industries tend to concentrate their credit needs in a single bank, whereas less creditworthy firms and firms in cyclical industries tend to borrow from more than one bank. The analysis also reveals different behaviour of firms towards financing banks in case of multiple lenders. Finally, the paper shows that the level of credit risk at the bank level decreases in line with the extent to which firms applying a relationship lending strategy occur in the bank's portfolio.