Banks close to home: local banking development and the housing credit market

Purpose This paper provides recent empirical evidence on the relationship between bank branch density, bank concentration and housing credit in Portugal–a small open economy where household debt for home purchases is notably high. Design/methodology/approach We analyze housing credit per capita and its share within banks' credit portfolios at the municipal level, using a recent and representative cross-sectional dataset. The analysis controls for established determinants of housing credit and employs both OLS and IV estimation methods to ensure robustness. Findings Our results indicate that the physical presence of banks is positively associated with housing credit volumes, primarily driven by the branch density of national banks. Moreover, the density of national banks is positively linked to the share of housing credit in banks' credit portfolios, whereas the density of local cooperative banks shows a negative association. Higher banking market concentration at the municipal level is correlated with lower per capita housing credit but a higher proportion of housing credit within banks' credit portfolios. Practical implications Our findings carry important implications for households, financial institutions and policymakers. While regional proximity to banks enhances access to housing credit, cooperative banks may not serve as the primary lenders for home financing. Originality/value This study contributes new empirical insights into the relationship between local banking development and housing credit at the municipal level. By distinguishing between national and cooperative bank branches, it highlights heterogeneity in local banking markets and sheds light on the strategic role of housing credit in banks' lending activities.