The role of banks’ technology adoption in credit markets during the pandemic

Nicola Branzoli, Edoardo Rainone and Ilaria Supino

Journal of Financial Stability, 2024, vol. 71, issue C

Abstract: This paper shows that higher information technology (IT) adoption by banks was associated to a larger increase in corporate lending in the months following the COVID-19 outbreak in Italy. Examining banks with heterogeneous degrees of IT adoption, we investigate the dynamics of credit and its allocation across firms using a new database with detailed information on banks’ IT expenditures and use of innovative technologies matched with bank-firm level data on credit growth before and during the pandemic. Using a diff-in-diff approach, we find that banks with a higher share of IT spending increased their credit more than others during the pandemic. The increase was concentrated in term loans extended to smaller and financially sounder companies; the effect was stronger in the initial phase of tighter restrictions to firm activity and individual mobility, and more significant for undertakings active in the sectors most affected by the shock. We provide evidence that these results are driven by bank’s ability to offer credit entirely online and bank’s use of artificial intelligence for credit risk assessment. Physical proximity between borrowers and lenders was important for credit provision during the pandemic, but only when combined with high level of IT adoption.

Keywords: Bank credit; Information technology; Firms; COVID-19 pandemic (search for similar items in EconPapers)
JEL-codes: G21 G22 G23 G24 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: The role of banks' technology adoption in credit markets during the pandemic (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:71:y:2024:i:c:s1572308924000159

DOI: 10.1016/j.jfs.2024.101230

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