Branch network structure, authority and lending behavior

Using a novel dataset of Ukrainian banks, this paper examines the link between the structure of branch network and bank lending. Bank regional branches are categorized into contact points without loan decision-making authority and more independent delegated branches which can make loan decisions. We find that a large and dispersed network of contact points can help increase credit supply and mitigate risks through diversification. Further, banks benefit from the information advantage brought by the presence of delegated branches in local markets. However, the longer distance between headquarters and local delegated branches, the more amplified agency problems become, which outweighs the benefits. Our findings suggest that the optimal structure could be a centralized network of delegated branches combined with a diversified access point network.