Bank Ownership and Lending Behavior

Abstract

This paper examines the impact of the ownership structure of Finnish banks and lending behavior from 2015 to 2024. It analyzes three forms of ownership: government-owned banks, cooperative banks, and banks controlled by foreign entities. This study investigates two research questions: the influence of ownership type on loan growth and the relative stability of lending practices between state-owned and cooperative banks compared to foreign-owned banks during economic downturns. The research employs panel data from six Finnish banks and performs pooled OLS regressions, augmented by robustness checks by EGLS estimation. The model comprises macroeconomic variables, bank-specific financial indicators, and interaction terms for economic recessions to elucidate the variations in lending behavior based on ownership type and temporal context. The results show that the type of ownership does not have a statistically significant effect on loan growth. The European Central Bank sets the policy rate, but how much money each bank has affects how much they lend more. The results do not corroborate the primary hypotheses of Agency Theory or Developmental State Theory within the Finnish setting. They propose that regulatory harmonization and institutional convergence could diminish ownership-related disparities in lending behavior. This paper enhances the literature on bank ownership, financial intermediation, and lending stability by providing evidence from unique banking sector from Finland. It offers policy-relevant findings regarding the significance of ownership and lending behavior.