Bank capital and lending: Evidence of nonlinearity from Indonesia

Mario Catalán, Alexander Hoffmaister and Cicilia Harun

Journal of Asian Economics, 2020, vol. 68, issue C

Abstract: This paper studies the transmission of bank capital shocks to loan supply in Indonesia. Using bank data for the period 2001:Q1 to 2018:Q4, we estimate dynamic panel data models of bank lending. We find nonlinear effects of capital on loan growth. Specifically, the response of weakly capitalized banks to changes in their capital positions is larger than that of strongly capitalized banks. This non-linearity implies that not only the level of capital but also its distribution across banks in the system affects the transmission of shocks to aggregate lending. Likewise, the effects of bank recapitalization on loan growth depend on banks’ starting capital positions and the size and distribution of capital injections.

Keywords: Bank capital; Bank lending; Financial shocks; Transmission mechanisms (search for similar items in EconPapers)
JEL-codes: E32 E44 E51 G01 G21 G28 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:68:y:2020:i:c:s1049007820300439

DOI: 10.1016/j.asieco.2020.101199

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