This paper examines the impact of the local banking market structure in
exacerbating or easing SME financing constraints in the Philippines. Using
city-level information on the number and composition of banking offices, our
results, in general, provide evidence confirming the information-based
hypothesis, which purports that competitive banking markets may be
associated with a reduction in credit availability, particularly to more opaque
borrowers. We also find that local banking market specialization matters.
Whereas cities with a widespread presence of commercial banks are associated
with a higher probability that SMEs face severe financing difficulties, SMEs
are less likely to have major financing obstacles in cities with a large number
and proportion of rural banks. In extension, investigating the impact of the
partial bank branching liberalization in 2005, we do not find increases in the
number of banking offices per capita to alleviate SME financing difficulties.