Effect of COVID-19 on non-performing loans in China

Kryzanowski, Lawrence; Liu, Jinjing; Zhang, Jie

doi:10.1016/j.frl.2022.103372

Cited by 21 publications

(19 citation statements)

References 29 publications

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“…Bank stability in this context include credit risk management to reduce default financing. Similar to a recent study in China, Kryzanowski et al (2022) exposed that non-performing financing increased during Covid-19 period despite the sluggish growth of lending. Credit risk deteriorated with the increase of Covid-19 cases in China.…”

Section: Review Of the Literaturesupporting

confidence: 82%

Malaysian Household Debt: The Impact of Covid-19 on Non-Performing Financing

2022

MAR

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In Malaysia, the composition of total financing includes household and sectoral financing, in which household financing holds the most considerable portion of the pie. Despite the significant portion of household financing, the non-performing ratio is recognized among the lowest among other sectoral ratios. The recent Covid-19 pandemic however, has directly given a negative impact on both sectoral and household repayment in the country. This study explored the effect of Covid-19 on the relationship between household financing and non-performing financing, examining the different impacts on non-performing financing during and before the pandemic. Apart from household financing, the study included the impact of other sectoral financing, mainly those that largely contributed to the economy on non-performing financing. The study used 15-year monthly aggregate data spanning from April 2006 to April 2021. The results indicated that household financing significantly affected the non-performing financing. As anticipated, the finding revealed the non-performing financing was significantly higher during the pandemic relative to before the crisis. In response to this phenomenon, banks have become more stringent in granting financing particularly to households. Evidently, the interaction between Covid-19 and household financing exhibited an opposite effect on nonperforming financing before and during the pandemic.

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Section: Review Of the Literaturesupporting

confidence: 82%

Malaysian Household Debt: The Impact of Covid-19 on Non-Performing Financing

2022

MAR

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“…We add to this literature by documenting robust empirical evidence in support of a credit supply channel in reducing banks’ insolvency risk in times of crisis (see Internet Appendix B). By so doing, we generate an interesting (consistent) link with the current literature on the Covid-19 crisis which enhances understanding of the role of banks’ regulatory capital during the ongoing pandemic (e.g., Abboud et al., 2021 ; BCBS, 2021 ; Cao and Chou, 2022 ; Duan et al., 2021 ; Kryzanowski et al., 2022 ). In this regard, our findings suggest that banks with higher levels of ex-ante regulatory capital are relatively more risk-resilient during the pandemic plausibly due to their ability to lend resiliently to households and businesses ( Abboud et al., 2021 ; BCBS, 2021 ; Cao and Chou, 2022 ).…”

Section: Introductionsupporting

confidence: 74%

“…Our analyses differ from these studies in three ways. First, the Covid-19 crisis, unlike other economic crisis triggered by financial market malpractices and macro-economic factors, is a health-induced shock and hence the findings we document captures dynamics which may be different from the above studies ( Beck and Keil, 2022 ; Berger and Demirgüç-Kunt, 2021 ; Duan et al., 2021 ; Kryzanowski et al., 2022 ).…”

Section: Introductioncontrasting

confidence: 64%

“…Robust ex-ante levels of regulatory capital can affect banks’ risk resilience through a credit-supply channel. The rationale is that continuous credit supply, especially to distressed clients, sustains business and household activity in times of economic downturns ( Gambacorta and Marques-Ibanez, 2011 ), thus alleviating further loan defaults by such clients ( Kryzanowski et al., 2022 ). This will potentially reduce banks’ credit risk and consequently their degree of insolvency risk.…”

Section: Introductionmentioning

confidence: 99%

“…In this regard, our findings suggest that banks with higher levels of ex-ante regulatory capital are relatively more risk-resilient during the pandemic plausibly due to their ability to lend resiliently to households and businesses ( Abboud et al., 2021 ; BCBS, 2021 ; Cao and Chou, 2022 ). Lending resilience reduces further loan defaults by clients ( Gambacorta and Marques-Ibanez, 2011 ; Kryzanowski et al., 2022 ), which in turn mitigates banks’ credit risk ( Beck and Keil, 2022 ), their degree of insolvency risk, and hence their contribution to systemic risk during the pandemic ( Duan et al., 2021 ).…”

Section: Introductionmentioning

confidence: 99%

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