Funding vs. Real Economy Shock : The Impact of the 2007-2009 Crisis on Small Firms' Credit Availability

Abstract

This paper analyzes the impact of two
 distinct shocks stemming from the cross-border transmission
 of the 2007-2009 crisis on credit availability for small
 firms. The paper uses data from AccessBank Azerbaijan which
 was affected in its liquidity position during the second and
 third quarters of 2008 by delays in its refinancing. The
 Azeri real economy was hit by the global crisis from the
 fourth quarter of 2008 onwards with a combined decline in
 oil prices, exports, remittances, and domestic demand.
 Therefore, a pure supply side shock con be contrasted with a
 real economy shock that hit exactly when the bank's
 funding position strengthened again. The paper finds that
 during the funding shock (potential) borrowers are
 discouraged from applying for loans. However, for those
 applications made, the likelihood of loan approval is not
 affected. The real economy shock, in contrast, reduces the
 approval likelihood for SME loans in particular, while agro
 and micro loans are considerably less affected. Finally,
 bank relationships increase credit availability in good as
 well as in bad times.