Abstract
ABSTRACTThis study empirically analyzes the mechanism between changes in loan portfolio weight and gross domestic product (GDP) shock, which is recognized as a systematic risk factor. Based on the research of Baele et al., which insists that well-diversified bank portfolios increase systematic risk, the study aims at determining whether South Korean banks reduce their loan portfolio risk by flexibly adjusting their loan portfolios to mitigate risk from the GDP shock. The generalized method of moments with panel data drawn from 17 South Korean banks is used in this empirical study. The main results show that South Korean banks exhibit lending behavior related to adjustment to portfolio weight in their loan assets and that this behavior is sensitive to the GDP shock. Moreover, this study examines whether the effect of the GDP shock on changes to loan portfolio weight can be differentially attributed to the differences in bank ownership and location.
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