Good and Bad Credit Growth: Sectoral Credit Allocation and Systemic Risk

Alin Marius Andries, Steven Ongena and Nicu Sprincean
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Alin Marius Andries: Alexandru Ioan Cuza University of Iasi; Romanian Academy - Institute for Economic Forecasting
Nicu Sprincean: Faculty of Economics and Business Administration, Alexandru Ioan Cuza University of Iași; National Institute for Economic Research, Romanian Academy
Authors registered in the RePEc Author Service: Alin Marius Andrieș

No 24-23, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We examine the association between sectoral credit dynamics and systemic risk. Contrary to most studies that only delve into broad-based credit development, we focus on sectoral credit allocation, specifically to households versus firms, and to the tradable versus non-tradable sector. Based on a global sample of 417 banks across 46 countries over the period 2000-2014, we find that lending to households and corporates in the non-tradable sector increases system-wide distress. Conversely, credit granted to corporations and to the tradable sector reduces banks’ systemic behavior. The findings emphasize critical policy implications considering sectoral heterogeneity. Authorities can intervene in the most systemic economic sectors and limit the accumulation of “bad credit” and preserve systemic resilience, while still benefiting from the positive impact of “good credit” on growth and financial stability.

Keywords: systemic risk; sectoral credit; financial stability (search for similar items in EconPapers)
JEL-codes: E51 G21 G32 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2024-03
New Economics Papers: this item is included in nep-ban, nep-fdg and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2423

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