The Bank Lending Channel of Monetary Policy? The Panel Evidence from Egypt

Abstract

This paper examines the relevance of the bank lending channel of monetary policy in Egypt using bank-level data. Previous empirical studies in Egypt that used macro-level data have not supported the relevance of the bank lending channel. However, using a sample of 32 commercial banks for the period from 1998 until 2011 and a dynamic panel GMM technique, the empirical findings revealed the relevance of the bank lending channel of monetary policy in Egypt. Moreover, there is a heterogeneity effect of monetary policy on bank loans according to bank size, in which the small banks are more affected during a monetary contraction than larger banks. This finding signals that the monetary authorities in Egypt should take cognizance of the stability of interest rates in order to stabilize the bank loan supply.Abstrak: Makalah ini membahas relevansi bank penyalur pinjaman kebijakan moneter/bank sentral di Mesir dengan menggunakan data bank bertingkat. Beberapa studi empiris sebelumnya yang menggunakan data tingkat makro belum mendukung relevansi penyaluran pinjaman bank. Namun, dengan menggunakan sampel dari 32 bank umum dari periode 1998 hingga 2011 dan dengan memakai teknik panel GMM dinamis, kami menemukan bukti empiris yang menunjukkan adanya relevansi saluran peminjaman bank kebijakan moneter di Mesir. Selain itu, ada efek heterogenitas kebijakan moneter pinjaman bank sesuai dengan ukuran bank, di mana pada umumnya bank yang kecil lebih terpengaruh selama kontraksi moneter dibandingkan dengan bank yang lebih besar. Temuan ini menunjukan bahwa pihak otoritas moneter di Mesir harus bertanggung jawab atas kestabilan suku bunga agar terjaga kestabilan pasokan pinjaman bank.

Bank lending channel and banking sector efficiency: panel data of Egypt

“…This means that banks with low capital reduce their lending after a monetary tightening more than banks with high capital. The importance of bank-level variables is consistent with many studies, such as Abdul Karim et al (2011) and Shokr et al (2014).…”

“…Some studies support the effectiveness of monetary policy on bank loan supply during the crisis, such Hosono (2006) in Japan. However, the empirical study by Shokr et al (2014) in Egypt did not take into account the effectiveness of monetary policy on bank loan supply during the crisis.…”

“…Although Shokr et al (2014) used disaggregated data to examine the importance of BLC in Egypt, they did not examine the effectiveness of BLC during the crisis. Therefore, this study uses panel data and GMM technique to fill this gap.…”

“…Third, it examines the effectiveness of monetary policy on loans during the Egyptian revolution and the global financial crisis. However, the study by Shokr et al (2014) did not study the effectiveness of monetary policy during this period. Fourth, it enhances the existing study by examining the bank efficiency, which is an important issue for policy makers to ensure economic stability and development.…”

“…First, it improves on the existing studies in Egypt by examining the effect of Egyptian revolution on bank loan supply. However, Shokr et al (2014) did not study the effect of Egyptian revolution on bank loans. Second, it also explores the effect of bank-level variables on bank loan supply.…”