Bank lending during the transition period in Eastern Europe

Tjark Schütte

    Research output: Contribution to journalArticle

    Abstract

    This paper develops a model for bank lending in economies in transition. Many loans in the banks portfolio are non-performing as former state-owned companies are still to be restructured and therefore at least in the short-run short of cash-flow to service their loans. The bank now faces the following dilemma: should it terminate the loan irrespective of the future profitability thereby pushing the company into bankruptcy or should it extend its credit facilities thereby risking throwing good money after bad? This paper will argue that the bank should support a firm willing to undergo sufficient restructuring by extending existing credit facilities. On the other hand, the bank should initiate bankruptcy procedures against firms unwilling to undergo restructuring. The analysis is confined to small and medium-sized enterprises as large firms frequently get implicit or explicit government support. © 1996 Kluwer Academic Publishers.

    Original languageEnglish
    Pages (from-to)9-16
    Number of pages8
    JournalSmall Business Economics
    Volume8
    Issue number1
    Publication statusPublished - 1996

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    Eastern Europe
    Bank lending
    Loans
    Bankruptcy
    Credit
    Cash flow
    Small and medium-sized enterprises
    Short-run
    Profitability
    Government support
    Large firms

    Cite this

    Schütte, Tjark. / Bank lending during the transition period in Eastern Europe. In: Small Business Economics. 1996 ; Vol. 8, No. 1. pp. 9-16.
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    Bank lending during the transition period in Eastern Europe. / Schütte, Tjark.

    In: Small Business Economics, Vol. 8, No. 1, 1996, p. 9-16.

    Research output: Contribution to journalArticle

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