Intra-Group Cross-Border Credit and Roll-Over Risks in CESEE – Evidence from Austrian Banks

During the last decade several CESEE countries built up high external liabilities vis-à-vis foreign banking sectors, with Austrian banks being important creditors. The provision of crossborder credit allowed for rapid financial deepening in many of these countries but also led to a build-up of vulnerabilities to negative spillovers. This study points out that Austrian banks granted a considerable part of direct cross-border credit to affiliated borrowers in CESEE, in particular to their own bank subsidiaries. To our knowledge, this is the first paper that examines the differences between direct cross-border lending to affiliates and direct crossborder lending to nonaffiliates. Our analysis shows that intra-group cross-border credit from Austrian banks was more stable than lending to nonaffiliated borrowers during the 2008/09 financial crisis period. We argue that this is due to lower information asymmetries and parent banks’ efforts to provide their subsidiaries with liquidity in times of financial distress to support their investments.