Determinants of Bank Credit in Emerging Market Economies

Guo, Kai; Stepanyan, Vahram

doi:10.2139/ssrn.1784539

Cited by 16 publications

(24 citation statements)

References 3 publications

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“…Ismail and Rahman (2009) assess a Markov Switching (MS) model to study the link between United States and Asian stock markets; their findings clearly display the pre‐eminence of non‐linear MS‐VAR over linear VAR in modelling asset return interactions across countries. Similarly, by using a MS‐VAR framework, Guo and Stepanyan (2011) study contagion effects between stock markets, real estate markets, CDS markets and energy markets in the United States. Their results document contagion effects in these markets, across two distinct regimes.…”

Section: Literature Reviewmentioning

confidence: 99%

Another look at contagion across United States and European financial markets: Evidence from the credit default swaps markets

Tsionas

Apergis

2021

Int. J Fin Econ

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The paper looks at the results of Apergis, Christou and Kynigakis (2019) and proposes a novel model that allows time variation in volatility, skewness and kurtosis, based on multivariate stable distributions. The analysis also looks at bank sector CDS, insurance sector CDS, sovereign bonds, equity and volatility indices. The findings corroborate their results and indicate significant evidence of contagion, especially through the channels of co‐skewness and co‐kurtosis. In addition, it establishes a higher order channel of causality between co‐skewness and co‐kurtosis.

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Section: Literature Reviewmentioning

confidence: 99%

Another look at contagion across United States and European financial markets: Evidence from the credit default swaps markets

Tsionas

Apergis

2021

Int. J Fin Econ

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“…Aysan et al (2010) find positive association between growth rates and credit growth for Turkey.20 Guo and Stepanyan (2011) find positive association between growth rates and credit growth for 38 emerging markets.…”

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confidence: 98%

Do trade and financial openness matter for financial development? Bank-level evidence from emerging market economies

Ashraf

2018

Research in International Business and Finance

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“…This result is not surprising since deposits are the main source of financing for commercial banks in Turkey. The positive association between deposit growth and bank lending is documented by Guo and Stepanyan (2011) for 38 emerging economies. Alihodzic and Eksi (2018) provide evidence on the fact that loan growth is fueled by deposit growth for Turkey as well as selected Eastern European countries.…”

Section: Impacts Of Asset Ratio Policymentioning

confidence: 99%

An investigation of the impacts of asset ratio policy on the banking system during the Covid-19 crisis in Turkey

İleri

2022

IJOEM

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PurposeThis paper provides a quantitative assessment of the “asset ratio” rule defined in Turkey as part of measures taken to stimulate the economy amid the Covid-19 pandemic. The main objective of the new rule was to boost credit growth in the economy and provide lending for credit-constrained households and firms that are in need. A secondary aim was to shift the denomination structure of the deposits toward domestic currency. Hence, the paper focus particularly on how the policy affected the growth rate of loans and the share of domestic deposits relative to foreign ones among the commercial banks. The policy was also heavily criticized due to the possibility that it will subjugate the banking system to excessive risk. The paper explore this possible impact by measuring how much the policy affected the default risk allowances in the banking system.Design/methodology/approachThe new policy required banks with deposits above a threshold level, i.e. large banks, to maintain a certain asset ratio. Banks with deposits below the threshold, i.e. small banks, were held exempt from it. The paper implement a difference-in difference methodology to assess the quantitative impacts of the asset ratio policy by taking large banks as the treatment group, and small banks as the control group.FindingsDifference-in-difference estimation results suggest that the asset ratio policy resulted in a 9.6% rise in loans and an 8.4% rise in government securities. Deposits also increased, with no significant change in their composition. The policy initially generated a 7% increase in the credit risk allowances of banks in the treatment group, which vanished in the following periods. Based on all these, the paper argue that the policy was successful in providing liquidity to the economy without jeopardizing the financial stability.Research limitations/implicationsThe findings of this study show that asset ratio policy is effective in increasing credit growth in countries with limited policy space such as Turkey. While saying this, the importance of the robust and prudent structure of the banking system in the economy should be underlined. Otherwise, the policy may have an unintended consequence of raising systemic risk. The policy suggestions also apply to advanced countries where the monetary policy has reached a natural limit due to the zero lower bound (ZLB). The ZLB problem encouraged these countries to use quantitative easing schemes in the aftermath of the Covid-19 crisis, just like the global financial crisis. However, it may take a long time to undo the effects of this policy on the balance sheets of central banks. In such cases, asset ratio policy can also be considered as an alternative tool for advanced economies notwithstanding the fact that the banking system should be prudent, well-capitalized and the country should have enough fiscal space. The main objective of the asset ratio policy was to help SMEs that were in urgent need of liquidity at the beginning of the crisis. The bank balance sheet data used in this paper does not contain information about the borrowers of the loans extended during the implementation of the policy. Analysis of this dimension using matched bank-firm level data will better demonstrate the success of the policy in achieving this goal. The paper address this as the main limitation of the paper and leave that analysis for future research.Originality/valueThis paper provides an important contribution to the literature by assessing a new unique policy whose objective is to stimulate loans and mitigate the impact of the Covid-19 crisis on the economy. The policy in question is predicted to have effects on the asset and liability structure and risk exposure of the banking system in Turkey. The quantitative analysis in this study estimates these impacts and discusses the effectiveness of the new policy in providing a relief for firms and households in need. Whether or not the policy caused a disruption in the sound structure of the banking system in Turkey is another question addressed in the paper.

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Determinants of Bank Credit in Emerging Market Economies

Cited by 16 publications

References 3 publications

Another look at contagion across United States and European financial markets: Evidence from the credit default swaps markets

Another look at contagion across United States and European financial markets: Evidence from the credit default swaps markets

Do trade and financial openness matter for financial development? Bank-level evidence from emerging market economies

An investigation of the impacts of asset ratio policy on the banking system during the Covid-19 crisis in Turkey

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