The implications of economic uncertainty for bank loan portfolios

Sanket Mohapatra and Siddharth M. Purohit

Applied Economics, 2021, vol. 53, issue 45, 5242-5266

Abstract: This paper analyzes the impact of economic uncertainty on the composition of bank credit across household and firm loans. Using bank-level data spanning 40 developed and developing countries, we find that higher economic uncertainty is associated with an increase in the relative share of household credit in the loan portfolio of banks. This change in composition of credit may result from banks’ efforts to reduce the overall riskiness of their loan portfolios, since corporate loans are generally viewed as riskier than household loans. This shift is more pronounced for weakly-capitalized banks, which may face greater risks during economic shocks, and for larger banks, which may be riskier due to complex business models and more market-based activities. The variation in our main findings by banks’ capitalization and size suggests that they partly arise from bank-specific factors in response to greater uncertainty. The baseline results hold for a range of robustness tests. Our study highlights the role of aggregate uncertainty in micro-level outcomes and is relevant for bank capital regulation and the conduct of macroprudential policy.

Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2021.1922589 (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: The Implications of Economic Uncertainty for Bank Loan Portfolios (2020)
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:taf:applec:v:53:y:2021:i:45:p:5242-5266

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2021.1922589

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().