Cyclicality of lending in Africa: The influence of bank ownership

2021

MJES

The paper empirically examines bank liquidity hoarding fluctuations over the economic cycle and provides further evidence on the heterogeneous cyclicality of bank liquidity hoarding across different banks in Vietnam for the period 2007–2019. Using both static panel models with the fixed-effects regression using corrected Driscoll-Kraay standard errors and dynamic panel models with the two-step system generalized method of moments estimator, we find that the liquidity hoarding of banks is procyclical. Concretely bank liquidity hoarding on- and off-balance sheets tends to increase during economic upturns and decrease during economic downturns. Our additional analysis yields a consistent pattern that financially weaker banks are more procyclical than their stronger counterparts. During booms and busts, the behaviour of hoarding liquidity is more pronounced for banks with smaller sizes, less capital, more risk, and less profit. This heterogeneity also contributes to understanding the core mechanism behind our main findings, further confirming the precautionary motive of bank liquidity hoarding.

Section: Empirical Model and Methodsmentioning

confidence: 99%

Section: Empirical Model and Methodsmentioning

confidence: 99%

Section: Bank Liquidity Hoarding and Cyclicality Of Bank Behaviourmentioning

confidence: 99%

See 1 more Smart Citation

Economic Cycle and Bank Liquidity Hoarding: Are They Procyclical or Countercyclical?

2021

MJES

“…Thus, we continue to allow for macroeconomic factors (the annual growth rate of GDP and the annual rate of inflation) to serve as control variables. A number of studies have analyzed the banks' loan allocation structure in relation to the business cycle of the economy, most leading to the conclusion about the positive correlation between bank lending and economic growth (Bertay et al, 2015;Davydov et al, 2018;Zins & Weill, 2018). Meanwhile, one could believe that an economy with low inflation rate is not more likely to support enterprises in production and business, which creates barriers for banks in expanding credit operations (Louhichi & Boujelbene, 2017).…”

Section: Other Variablesmentioning

confidence: 99%

Bank diversification and the effectiveness of monetary policy transmission: Evidence from the bank lending channel in Vietnam

Cogent Economics & Finance

2021

The study empirically examines the impact of bank diversification on monetary policy transmission through the bank lending channel. Based on monetary and bank-level data from 2008 to 2018 in Vietnam, a diverse environment of monetary policy tools, results show that bank diversification significantly drives the bank lending channel in different ways. Using the changes in lending rates and policy rates as monetary policy indicators, the study posits strong evidence to indicate that the transmission of the bank lending channel becomes weaker as banks get more involved in non-traditional activities. In contrast, we observe that bank diversification promotes the effectiveness of monetary policy transmission by the intervention of foreign exchange reserves, with no clear-cut link in the case of open market operations. Further analysis indicates the weakening effect is almost confirmed in all bank groups, while the strengthening effect works only for banks with large capital buffers. In brief, the results suggest that monetary authorities should be vigilant when they are strongly encouraging bank diversification. Besides, they also need to choose the appropriate monetary tools to apply and establish specific policies for different groups of banks.

“…This suggests that small banks are more likely to have more unused funding to invest in government bonds. Finally, during the economic upturns, banks tend to boost credit activities to amplify the business cycle (Bertay et al, 2015;Davydov et al, 2018;Zins & Weill, 2018). As a result, it might be evident that government bonds are no longer preferred.…”

Section: Model 1 Specificationmentioning

confidence: 99%

Holdings of sovereign bonds by commercial banks in Vietnam

Cogent Economics & Finance

Huynh

2020

The study examines the bank-specific determinants of sovereign bond holdings and how such holdings affect bank lending of the banking market in Vietnam. Using annual financial data of commercial banks from 2007 to 2018 and alternative regression techniques for both dynamic and static models, we attribute the motives of sovereign bond holdings to the liquidity reserves, profitability improvement, and riskshifting. At odds with our expectation, we find no evidence in favor that Vietnamese banks purchase government bonds to increase capital adequacy ratio. Furthermore, to clarify the economic impact of sovereign bond investment, we also offer evidence to reject the notion that purchases of government bonds are detrimental to banks' core function in normal times captured by bank lending and liquidity creation. All estimates are robust across alternative regression techniques in both dynamic and static panel models. Overall, our findings have important policy implications for Vietnam and some emerging economies with similar backgrounds.