Why Do Polish Banks Limit Lending to Enterprises?

The article sets out to check a hypothesis under which Polish banks limit lending to the corporate sector, especially small businesses. The theory holds that banks deal with asymmetric information. In addition to the objective risk resulting from potential changes in the situation of borrowers, lenders are subject to a risk involving disloyal client behavior. This may result in reduced lending to some or even all borrowers, either directly by introducing more rigorous eligibility criteria or by increasing interest rates. A survey conducted among Polish banks indicates that they do not declare a strategy of limiting lending, but want to fend off the risk with measures such as technical improvements in the procedures for examining credit worthiness and by demanding guarantees with an adequate level of security. These requirements particularly hit small businesses, whose reporting policies are not adapted to supplying the information in question and which do not have the required level of security. Additionally, these entities are generally seen as less loyal than larger companies, and the profitability of banking operations in their case is lower. This explains why banks do not reduce their interest rate margins for these entities, which is an additional factor that discourages those applying for loans. This trend may add to the risk associated with small borrowers, by discouraging those businesses which have relatively low albeit stable incomes rather than those which pursue decidedly risky operations