Loan Spreads over the Credit Cycle

Loan Spreads over the Credit Cycle

25/10

Tarık Alperen Er, Burak Deniz, İbrahim Yarba

English

July 2025

This paper investigates the firm heterogeneity in the evolution of loan spreads over the credit cycle in Türkiye. Using the combination of credit registry and administrative datasets, our bank-firm level analysis shows that small- and medium-sized enterprises (SMEs) and firms that are riskier and more prone to financial frictions pay higher loan interest rates. The results also reveal that loan spreads of these firms decrease and converge to the spreads of large and financially sound firms during expansion periods. Our firm-level analysis indicates that these findings persist at the firm level. Our results suggest that SME loan spreads rise more than those of larger firms during tightening periods. This reveals the asymmetric deterioration in SMEs’ lending conditions relative to large firms. On the other hand, the significant role of firm riskiness on loan spreads weakens during expansion periods. However, these findings are valid only for loans extended by private banks but not state-owned banks. Our findings lend support to policy makers’ prudent approaches over the credit cycle.

Loan spreads, Credit cycle, SMEs, State-owned banks

E32; E5; G21