Do local differences in trust affect bank lending activities?

•Local trust differentiation is relevant for bank activities related to lending.•Banks in high local trust areas charge lower rates on loans.•Banks compensate for lower interest incomes with reduced labor costs.•Local trust affects both bank relationships and demand for bank staff. This study investigates the impact of local differences in trust on bank lending activities. Using a novel dataset of nearly 600 local Polish banks and their socioeconomic environments, we find that banks operating in regions with high-trust scores set lower loan interest rates and have lower labor-related costs compared to those operating in low-trust regions. Therefore, the empirical evidence suggests that local differences in trust influence not only bank-borrower relationships but also the human resources needed to gather and process credit information.