Abstract
We explore the impact and evolution of loan portfolio diversification during the 2001–2002 Argentine financial crises. Using a novel dataset that combines public information on the main activity of the largest 930 Argentine firms with their borrowing from each bank operating in the country between 1999 and 2004, we find that banks did not modify much their loan portfolio mix as a response to the crisis. Econometric results point to a positive effect of sectoral diversification and lending to tradable sectors on bank profitability and risk mitigation. Our results suggest that larger banks benefit more from diversification than smaller ones and that the benefits of diversification are greater during the downside of the business cycle.
Highlights
The recent 2001-2002 Argentine financial crisis has attracted a great deal of attention in academic and professional circles as a result of its peculiar genesis and far-reaching consequences
The present study aims to shed some light on the following questions: (i) In view of the massively anticipated currency devaluation of 2002, did banks change beforehand their loan sectoral composition, especially in favor of tradeable goods?, (ii) In any case, did all banks behave in a similar fashion in the face of the crisis, or can differences be found according to the size or ownership structure of the banks?; and (iii) Did diversified banks perform comparatively better around the crisis, as measured by their returns and non-performing loans?
In order to circumvent these obstacles, we put together a new database that combines public information on the main activity of the largest 1,100 Argentine firms with their borrowing from each bank operating in the country during the 1999-2004 period
Summary
The recent 2001-2002 Argentine financial crisis has attracted a great deal of attention in academic and professional circles as a result of its peculiar genesis and far-reaching consequences. Some analysts have advanced that the lack of proper diversification of the loan portfolio was a key catalyst of the banking crisis (see Fanelli (2002) and Perry and Servén (2002)), no hard evidence has so far been produced whatsoever In this spirit, the present study aims to shed some light on the following questions: (i) In view of the massively anticipated currency devaluation of 2002, did banks change beforehand their loan sectoral composition, especially in favor of tradeable goods?, (ii) In any case, did all banks behave in a similar fashion in the face of the crisis, or can differences be found according to the size or ownership structure of the banks?; and (iii) Did diversified banks perform comparatively better around the crisis, as measured by their returns and non-performing loans?. In order to circumvent these obstacles, we put together a new database that combines public information on the main activity of the largest 1,100 Argentine firms with their borrowing from each bank operating in the country during the 1999-2004 period
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