Bank lending and loan quality: an emerging economy perspective

Bank lending and loan quality: an emerging economy perspective Empir Econ https://doi.org/10.1007/s00181-018-1436-5 Bank lending and loan quality: an emerging economy perspective 1 2 Pallavi Chavan · Leonardo Gambacorta Received: 19 April 2016 / Accepted: 10 March 2018 © Springer-Verlag GmbH Germany, part of Springer Nature 2018 Abstract This paper analyses how non-performing loans (NPLs) in the emerging economy of India behave through the cycle. We find that a one-percentage point increase in loan growth is associated with an increase in NPLs over total advances (NPL ratio) of 4.1% in the long run with the response being higher during expansionary phases. Furthermore, NPL ratios of banks are found to be sensitive to the interest rate environment and the overall growth of the economy. Notwithstanding differences in management and governance structures, there is a procyclical risk-taking response to credit growth in the case of both public and private banks with private banks being more reactive to changes in interest rate and business cycle conditions. Keywords Procyclicality · Loan quality · Bank lending · Emerging economy · Bank ownership · Moral hazard JEL Classification E320 · G210 · G010 We thank Claudio Borio, Romar Correa, Saibal Ghosh, Gabriel Jiménez, Richhild Moessner, Madhusudan Mohanty, Suresh Sundaresan and, in particular, two anonymous referees http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Empirical Economics Springer Journals

Bank lending and loan quality: an emerging economy perspective

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Publisher
Springer Berlin Heidelberg
Copyright
Copyright © 2018 by Springer-Verlag GmbH Germany, part of Springer Nature
Subject
Economics; Econometrics; Statistics for Business/Economics/Mathematical Finance/Insurance; Economic Theory/Quantitative Economics/Mathematical Methods
ISSN
0377-7332
eISSN
1435-8921
D.O.I.
10.1007/s00181-018-1436-5
Publisher site
See Article on Publisher Site

Abstract

Empir Econ https://doi.org/10.1007/s00181-018-1436-5 Bank lending and loan quality: an emerging economy perspective 1 2 Pallavi Chavan · Leonardo Gambacorta Received: 19 April 2016 / Accepted: 10 March 2018 © Springer-Verlag GmbH Germany, part of Springer Nature 2018 Abstract This paper analyses how non-performing loans (NPLs) in the emerging economy of India behave through the cycle. We find that a one-percentage point increase in loan growth is associated with an increase in NPLs over total advances (NPL ratio) of 4.1% in the long run with the response being higher during expansionary phases. Furthermore, NPL ratios of banks are found to be sensitive to the interest rate environment and the overall growth of the economy. Notwithstanding differences in management and governance structures, there is a procyclical risk-taking response to credit growth in the case of both public and private banks with private banks being more reactive to changes in interest rate and business cycle conditions. Keywords Procyclicality · Loan quality · Bank lending · Emerging economy · Bank ownership · Moral hazard JEL Classification E320 · G210 · G010 We thank Claudio Borio, Romar Correa, Saibal Ghosh, Gabriel Jiménez, Richhild Moessner, Madhusudan Mohanty, Suresh Sundaresan and, in particular, two anonymous referees

Journal

Empirical EconomicsSpringer Journals

Published: Jun 2, 2018

References

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