Related party lending and rural bank risk: Evidence during the Covid-19 period

Bowo Setiyono and Munawaroh, U’um

Research in International Business and Finance, 2024, vol. 67, issue PB

Abstract: This study aims to investigate bank lending behaviors during the Covid-19 period and further to examine the effect of related party lending (RPL) on the rural bank risk. We posit there is significant change on the lending growth and related party lending proportion during this period. We utilize 730 rural banks in Indonesia using panel data approach from 2019 to 2022. Utilizing panel data estimations to test the impact of RPL on risk and to further investigate its interaction with the COVID-19 using system GMM, we document that RPL is negatively associated with rural bank risk proxied by loan loss provision as ex-ante credit risk and positively associated with Z-Score as bank default risk. Moreover, the COVID-19 weaken the relationship between related party lending and rural bank risk. These results provide new insight into understanding risk management implementation for minimizing these risks. We also adopt several proxies and a split sample analysis to check for the robustness. Finally, we seek for lesson learned from the crisis and propose some implication for bank and relevant authorities.

Keywords: Related party lending; Covid-19; Rural banks; Risk; Emerging market (search for similar items in EconPapers)
JEL-codes: D82 E44 G21 G28 G32 (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)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0275531923002052
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:67:y:2024:i:pb:s0275531923002052

DOI: 10.1016/j.ribaf.2023.102079

Access Statistics for this article

Research in International Business and Finance is currently edited by T. Lagoarde Segot

More articles in Research in International Business and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().