Closure of non-domestic bank branches and credit supply

Given the importance of credit for any economy and taking into account the current context which is characterized by an increasingly notable reduction in non-domestic bank branches and with Portugal being one of the countries with the largest decline it is important to study the impact of this reduction on the credit supply of national banks. The impact of the increasingly reduced presence of non-domestic bank branches on the volume of credit granted in relation to GDP and on the total assets of national banks was analyzed. The database consists of 18 national banks and six foreign-controlled branches. The data are quarterly with a nine-year analysis period (2006-2014). Using the Fixed Effects estimator we conclude that the presence of foreign bank branches has a positive relationship with the credit supply of national banks in terms of GDP. The results are consistent with the literature as they reinforce the evidence that in general in developed countries non-domestic bank branches have a positive relationship with domestic credit creation (unlike in developing countries).