Abstract
Cross-border bank positions in the Asia and the Pacific region remain highly concentrated to few counterparties, exposing the region to financial risks and policy spillovers. Consequently, assessing the determinants and impacts of the region’s cross-border banking concentration is relevant in designing appropriate policies to promote financial development and safeguard financial stability. To this end, we construct cross-border bank concentration measures for 47 economies in Asia and the Pacific from 2000 to 2019. The results show that higher capital account and trade openness as well as per capita income are significantly associated with lower cross-border bank concentration. Moreover, elevated cross-border bank concentration tends to lower domestic credit growth and nonperforming loans, while we find no impact on bank profitability for the region.
Highlights
Cross-border bank credit is dominated by a small number of very large links between banks in one country and borrowers in another
We find that higher capital account and trade openness, financial development and per capita income are significantly associated with lower cross-border bank concentration, suggesting that less developed, less integrated, and more closed economies tend to depend on a few cross-border bank counterparties
A 1% of gross domestic product increase in trade openness is significantly associated with lower HHI total (HHI_TOT) by around 0.05 percentage points. These results indicate that Asia and the Pacific economies that are highly open in trade and finance tend to have lower cross-border concentration of bank holdings, while those that are less open tend to have higher bank concentration
Summary
A2.1 Sensitivity Test—Determinants of Herfindahl–Hirschman Index (Using Financial Development). A2.2 Sensitivity Test—Determinants of Herfindahl–Hirschman Index (Removing Capital Openness). A2.3 Sensitivity Test—Determinants of Herfindahl–Hirschman Index (Adding Domestic Bank Concentration). A2.4 Sensitivity Test—Impact of Herfindahl–Hirschman Index on Bank Credit Growth (with Lagged Bank Credit Level). A2.5 Sensitivity Test—Impact of Herfindahl–Hirschman Index on the Level of Bank Credit. A2.6 Sensitivity Test—Impact of Herfindahl–Hirschman Index on Nonperforming Loans (with Lagged NPL). A2.7 Sensitivity Test—Impact of Herfindahl–Hirschman Index on Nonperforming Loans (with Bank Assets)
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