6/2020 Merike Kukk, Natalia Levenko. Alternative financing and the non-performing loans of the corporate sector in Estonia

Working Papers of Eesti Pank 6/2020

The paper investigates how much alternative options for corporate financing have affected the quality of domestic corporate bank loans in Estonia. We use quarterly data from 2004Q1–2019Q3 and three different methods to detect the relationship between the non-performing corporate loans of domestic banks and alternative sources of financing for firms. We find that a rise in intra-group
borrowing from parent companies is associated with an increase in overdue corporate loans. There is also some evidence that foreign bank loans and trade credit might be positively related to non-performing corporate loans. The results suggest
that a broader set of sources of corporate financing beyond domestic bank loans should be considered when assessing the dynamics of the overdue corporate loans of the domestic banking sector.

JEL Codes: G32, G34, C11, C14

Keywords: corporate debt, non-performing loans, alternative financing, Bayesian model averaging, local projection method

DOI: 10.23656/25045520/062020/0180

Authors’ emails: merike.kukk [at] eestipank.ee, natalia.levenko [at] eestipank.ee

The views expressed are those of the authors and do not necessarily represent the official views of Eesti Pank or the Eurosystem.