Granular Bank Shocks and Financial Intermediation in a Low-Income Economy

Ahmed-Amine El Azdi, Onur Ozlu and Felix Fischer

No 2026/087, IMF Working Papers from International Monetary Fund

Abstract: This paper studies how granular bank shocks propagate to aggregate credit in Mauritania’s banking system. Using confidential monthly data, we extract size-weighted innovations to lending growth and profitability. At the aggregate level, lending shocks are large and exhibit a near one-for-one mapping into monthly credit growth, accounting for roughly 80 percent of its short-run fluctuations. By contrast, profitability shocks are small, statistically insignificant, and contribute almost nothing to explaining aggregate credit. This pattern suggests that fluctuations in intermediation are driven by shifts in lending at a few dominant banks, while high earnings are largely retained as buffers rather than recycled into new credit, revealing a persistent wedge between profitability and the provision of financial services. The results have direct policy relevance for Mauritania and, more broadly, for low-income and emerging economies with concentrated and nascent banking sectors.

Keywords: Banking sector granularity; financial intermediation; aggregate credit; idiosyncratic shocks; low-income country; emerging economies (search for similar items in EconPapers)
Pages: 44
Date: 2026-05-01
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