Macroeconomic Uncertainty and Bank Lending: The Case of Ukraine

Oleksandr Talavera, Andriy Tsapin and Oleksandr Zholud

No 637, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: Our study investigates the link between bank lending behavior and macroeconomic uncertainty. We develop a dynamic model of a bank's value maximization that results in a negative relationship between loan to capital ratio and macroeconomic uncertainty. This proposition is tested using a panel of Ukrainian banks collected from NBU and covering the period 2003q1-2005q3. The results indicate that banks increase their lending ratios when macroeconomic uncertainty decreases. We demonstrate that our results are robust with respect to the measurement of macroeconomic uncertainty. The reaction of banks to changes in uncertainty is not uniform and depends on bank-specific characteristics.

Keywords: Banks; macroeconomic uncertainty; Ukraine; banks' balance sheets (search for similar items in EconPapers)
JEL-codes: G21 G28 P27 P34 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-mac and nep-tra
Date: 2006
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