Credit Growth and Bank Soundness: Fast and Furious?

Igan, Deniz; Pinheiro, Marcelo

doi:10.2139/ssrn.1971429

Cited by 3 publications

(14 citation statements)

References 8 publications

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“…Berrospide and Edge (2010) show that a 1 percentage point reduction in GDP growth leads to about a 4 percentage point decline in annualized loan growth. Consistent findings include Igan and Pinheiro (2011) and Laidroo (2012), who confirm that GDP growth has a positive impact on credit growth. Igan and Pinheiro (2011) state that, during upturns, favorable investment opportunities and strong economic activity push asset prices up, which in turn improve the creditworthiness of borrowers and allow them to borrow more against higher values of collateral.…”

Section: Literature Reviewsupporting

confidence: 59%

“…Consistent findings include Igan and Pinheiro (2011) and Laidroo (2012), who confirm that GDP growth has a positive impact on credit growth. Igan and Pinheiro (2011) state that, during upturns, favorable investment opportunities and strong economic activity push asset prices up, which in turn improve the creditworthiness of borrowers and allow them to borrow more against higher values of collateral. During downturns, borrowers' financial situation deteriorates, customers become pessimistic and asset prices fall causing decrease in value of collaterals (Laidroo, 2012), which results in increased defaults and tightening of credit standards.…”

Section: Literature Reviewsupporting

confidence: 59%

“…While empirical findings on the relationship between lending and profitability are scant, the existing few studies show that there is a positive link between lending and profitability (Igan and Pinheiro, 2011; Laidroo, 2012; Hessou and Lai, 2018). Igan and Pinheiro (2011) uncovered that loan growth is positively related to profitability implying that higher profitability allows financial institutions to grow faster. Hessou and Lai (2018) also show that profitability as measured by return on assets (ROA) at time t −1 is followed by subsequent more loan granting.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Depending on which hypothesis holds true in Africa, the relationship between demand for loan (and hence, credit growth) and employment could be negative/positive given the purpose of micro-credits is to finance micro-entrepreneurs. Finally, catch-up phenomenon, reflected in faster credit growth in poorer countries, is also important in explaining lending behavior (Igan and Pinheiro, 2011).…”

Section: Literature Reviewmentioning

confidence: 99%

“…The existing literature shows that several studies examined the drivers of lending behavior using empirical data from the banking industry in the United States (Berrospide and Edge, 2010; Karmakar and Mok, 2013), Italy (Cucinelli, 2016; Michelangeli and Sette, 2016), European Countries (Laidroo, 2012; Thibaut and Mathias, 2014), 90 countries worldwide (Igan and Pinheiro, 2011), the eleven G10 countries plus those of Austria, Australia, and Spain (Gambacorta and Shin, 2018) and Nigeria (Olokoyo, 2011). While the prior studies provide useful insights mainly on the effects of capitalization, portfolio risk and/or business cycle on loan supply in the banking industry, studies on the determinants of lending behavior in microfinance institutions are virtually missing.…”

Section: Introductionmentioning

confidence: 99%

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What drives microfinance institution lending behavior? Empirical evidence from Sub-Saharan Africa

Tehulu

2021

IJOEM

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PurposeWhile poverty alleviation is the first core goal of Sustainable Development Goals (SDGs), and microfinance institutions (MFIs) are considered important instruments for poverty alleviation in developing countries as they provide credit access to the poor, there is surprisingly little evidence of the drivers of the lending behavior of microfinance institutions. Hence, the purpose of this study is to identify the factors that influence the credit growth of MFIs in Sub-Saharan Africa (SSA).Design/methodology/approachThe study relies on unbalanced panel dataset of 130 MFIs operating across 31 countries in SSA during the period 2004–2014 constituting 546 useable observations. The study uses the Arellano-Bover/Blundell-Bond two-step generalized method of moments (GMM) Windmeijer bias-corrected standard errors to estimate the models.FindingsThe results confirm that while capitalization, liquidity and size are positively associated with credit growth, profitability negatively impacts credit growth; whereas, other MFI specific factors namely portfolio quality, deposit growth and nondeposit borrowing growth have little direct effects on MFI credit growth. The results also show that MFI credit growth is pro-cyclical but negatively related to GDP per capita consistent with the theory of convergence. On the other hand, inflation and employment are not important covariates in the credit growth of MFIs.Practical implicationsThe findings suggest that if MFIs improve their liquidity and size by attracting more deposits and nondeposit borrowings, among others, they can increase credit access to the poor. Moreover, since the lending behavior of MFIs is not resilient to GDP shocks, different measures are needed to increase the financial stability of the microfinance industry. In this respect, since MFI capitalization is positively associated with credit growth and MFI credit growth is pro-cyclical, the findings provide useful insights to central banks/regulatory authorities and the Basel Committee as to the need for a counter-cyclical capital buffer requirement in the microfinance industry.Originality/valueThe study is the first comprehensive study to examine the drivers of MFI lending behavior as an extension to lending behavior models from the banking industry.

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Section: Literature Reviewsupporting

confidence: 59%

Section: Literature Reviewsupporting

confidence: 59%

Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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What drives microfinance institution lending behavior? Empirical evidence from Sub-Saharan Africa

Tehulu

2021

IJOEM

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Effectiveness of Macroprudential Policies on Credit Surge and Stop Episodes

Ekinci,

Kenc,

Tamgac Tezcan

2024

Open Econ Rev

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Các yếu tố tác động đến tăng trưởng tín dụng của các ngân hàng thương mại Việt Nam giai đoạn 2007 – 2015

Xuan¹

2023

dthujs

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Tăng trưởng tín dụng là một trong những ưu tiên hàng đầu của Chính phủ và toàn ngành ngân hàng trong giai đoạn hiện nay. Đầu năm 2014, Thủ tướng Chính phủ đã chỉ đạo Ngân hàng Nhà nước thực hiện các giải pháp xử lý nợ xấu và thúc đẩy tăng trưởng tín dụng nhằm nâng cao chất lượng hoạt động của các ngân hàng và góp phần phát triển nền kinh tế. Nghiên cứu này phân tích các yếu tố tác động đến tăng trưởng tín dụng của các ngân hàng thương mại Việt Nam. Sử dụng dữ liệu từ báo cáo tài chính của 25 ngân hàng thương mại Việt Nam giai đoạn 2007-2014. Kết quả nghiên cứu với mô hình REM và GMM cho thấy tăng trưởng vốn huy động và tăng trưởng kinh tế là hai yếu tố có tác động tích cực góp phần giúp ngân hàng tăng trưởng tín dụng. Ngược lại, tỷ lệ nợ xấu, quy mô, tỷ lệ lạm phát là các yếu tố không có lợi cho việc tăng trưởng tín dụng của ngân hàng.

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Credit Growth and Bank Soundness: Fast and Furious?

Cited by 3 publications

References 8 publications

What drives microfinance institution lending behavior? Empirical evidence from Sub-Saharan Africa

What drives microfinance institution lending behavior? Empirical evidence from Sub-Saharan Africa

Effectiveness of Macroprudential Policies on Credit Surge and Stop Episodes

Các yếu tố tác động đến tăng trưởng tín dụng của các ngân hàng thương mại Việt Nam giai đoạn 2007 – 2015

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