The impacts of interest rates on banks’ loan portfolio risk-taking

Adão, Luiz F.S.; Silveira, Douglas; Ely, Régis Augusto; Cajueiro, Daniel O.

doi:10.1016/j.jedc.2022.104521

Cited by 6 publications

(13 citation statements)

References 137 publications

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“…In Specification 1 without time lag, the sign of the regression coefficient is positive, which means that when capital adequacy is high, the proportion of loans linked to market interest rates is high. This result is line with the argument of Adao et al (2022) who found a positive relationship between capital adequacy and risk tolerance in loan portfolio decisions.…”

Section: Resultssupporting

confidence: 93%

“…As mentioned earlier, Adao et al (2022) argued that banks' risk taking due to interest rate fluctuations is differentially attributed to changes in their loan portfolios according to their financial characteristics. From this point of view, it was confirmed that the influence of changes in financial characteristics of banks on changes in deposit‐linked loans, which are relatively safe loans, is different from the effect on changes in market rate‐linked loans.…”

Section: Resultsmentioning

confidence: 97%

“…Adao et al (2022) argued that the higher the level of market interest rates following the base rate hike, the higher the tendency for banks to be connected through interbank loans. This is because banks end up facing liquidity shortages as deposits move to banks offering higher interest rates.…”

Section: Theoretical Underpinningmentioning

confidence: 99%

“…Recently, a major shock in the financial market is monetary tightening due to increased inflationary pressure. Therefore, this study is based on Klomp and De Haan (2012) and Adao et al (2022), and assumes that a bank's financial characteristics would have a significant effect on the composition and change of the loan portfolio faced with the central bank's tightening monetary policy. Analysing the relationship between the composition of the loan portfolio in response to changes in the base interest rate and the financial characteristics of banks will help to understand the decision process of bank loan supply in Korea.…”

Section: Introductionmentioning

confidence: 99%

“…A recent study Adao et al (2022) analysed the relationship between interest rates and banks' risk taking. Recently, a major shock in the financial market is monetary tightening due to increased inflationary pressure.…”

Section: Introductionmentioning

confidence: 99%

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Household loan portfolios and financial characteristics of Korean banks

Seo

2023

Asian-Pac Economic Lit

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This study contributes to understanding the supply mechanism of household loan portfolios in Korea, where the ratio of household debt to GDP is high. This study conducted an empirical analysis of how banks' financial characteristics including capital adequacy, financial soundness, and profitability affect banks' supply of variable‐rate household loans that are sensitive to increases in the central bank's base interest rate and have higher possibility of loan default, considering time lag in terms of banks' risk‐taking behaviour. The main results suggest that the proportion and change of variable‐rate loans are significantly affected by the level and change of financial characteristics. In particular, a high level of capital adequacy enabled banks to supply risky loans by increasing their risk tolerance.

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Section: Resultssupporting

confidence: 93%

Section: Resultsmentioning

confidence: 97%

Section: Theoretical Underpinningmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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