Credit Growth Rate Research Articles

Bank Credit Shocks and Employment Growth: An Empirical Framework for the Case of Brazil

Existing evidence from the literature on financial intermediaries and economic development suggests that resource-constrained firms can growth faster in the presence of more financial services. With the new macroeconomic environment after 1994 and the institutional reforms in the Brazilian financial sector, there was an important expansion in the availability of bank resources. The process of financial deepening occurred simultaneously to sustained growth in formal employment. This paper studies the relationship between bank credit growth and formal employment growth from 1995 to 2015. The article combines two sets of administrative data: i) private and public banks’s balance sheets collected by the Brazilian Central Bank, and; ii) employment in formal establishments recorded by the Ministry of Labor. The empirical model exploits the large cross-sectional and timeseries variation in financial resources to build a Bartik-instrument for credit growth that interacts the country-wide increase in credit and the participation of different banks in local economies. The identification strategy relies on an auxiliary regression separating supply and demand of credit at the local level. This strategy bypasses some of the concerns with simultaneity bias in articles using aggregate data, and measurement issues of cross-country studies. Regression results indicate that a one percentage point increase in credit growth rates is associated with a 0.12 percentage point increase in employment growth rates. In areas with a prevalence of private banks, an acceleration in credit growth is also associated with a reduced number of establishments and higher average establishment size. The results are consistent with external financing incentivizing establishments to expand, displace other businesses without funds, and increase their size. This study employs aggregated data at the micro-region level, which limits a more detailed characterization of credit shocks effects at the individual establishment level. We have found that the relationship between credit and employment growth is weaker in micro-regions with smaller establishments, suggesting to policy-makers that further reforming the financial system can unleash the potential for more formal jobs in small firms in Brazil. Some microeconomic reforms such as the creation of nation-wide credit score records are already taking place and should possibly bear fruits in the futu

Unconventional monetary policies and bank credit in the Eurozone: An events study approach

AbstractWe study the impact of the unconventional monetary policies implemented by the European Central Bank on bank credit to Eurozone general governments and to households. The database is a macro panel of the 19 Eurozone countries over the period between January 2008 and May 2016. Using an events study approach, we create two dummy variables that reflect the timing and changes of unconventional and conventional monetary policy measures, which we use as key determinants in panel regression models. Our results suggest that unconventional monetary policies have a positive lagged impact on bank credit, with much more to general governments (1.2% per month) than to household consumers (0.2%). All other variables in the models, such as the interest rates, the Industrial Production Index, and the inflation rate have the expected estimated signs. Finally, we estimate the unobserved country‐specific fixed effects measured in terms of credit growth rates. The monthly growth rates of loans to households in Ireland are about 0.74% below the average country, which is closely related to its post‐2008 banking crisis. Moreover, the net purchases' impact under the Public Sector Purchase Programme of loans of Monetary Financial Institutions to general governments was much larger for countries that were hit by the financial and economic crisis.

Makroekonomske i specifične bankarske determinante nekvalitetnih kredita u Bosni i Hercegovini

The aim of the research is to identify the macroeconomic and specific banking factors affecting the rate of nonperforming loans in the banking sector of Bosnia and Herzegovina (BiH). The authors assume that the three macroeconomic and five specific banking factors influence the quality of the loan portfolio. Aggregate data were used, which are taken from the Central Bank of BiH, Agency for Statistics of BiH and Labour and Employment Agency of BiH, and analyzed by descriptive statistics, correlation and regression analysis in the period from the first quarter of 2006 to the end of the fourth quarter of 2016. The empirical results show that there is a correlation between nonperforming loans and unemployment rate, inflation rates measured by the growth rate of consumer prices, return on assets and credit growth rates, while the impact of the growth rate of real gross domestic product, capital adequacy ratio, return on equity and active interest rates is not statistically significant.

The Good, the Bad, and the Ugly: Impact of Negative Interest Rates and QE on the Profitability and Risk-Taking of 1600 German Banks

The recent negative interest rate policy (NIRP) and quantitative easing (QE) programme by the ECB have raised concerns about the pass-through of monetary policy. On the one hand, negative rates could lead to declining bank profitability making an expansionary monetary policy contractionary. Also, if interest rates are too low for too long banks could be induced to take too much risky credit. On the other hand, several economists argue that there is nothing special about negative interest rates per se. This paper uses a large micro level data set of the German bank universe to examine how banks behave in this uncharted territory. The evidence found suggests that bank’s business model, i.e. the share of overnight deposits, plays a crucial role. While some banks may benefit in the short run via for instance reduced refinancing costs or lower loan loss provisions, many banks with high deposit ratios face lower net interest income and lower credit growth rates. If continued for too long QE and NIRP erode bank profits for most banks eventually.

Determinants of the credit risk in developing countries: a case of Kosovo banking sector

The determinant of the credit risk of banks in a developing country have limited data to analyze and limited participation in literature. Determinants of credit risk are very important in order to define the non-performing loans (NPL) in Kosovo banking systems. Even though banking system in Kosovo is the newest in region, it is comparable with banking systems to all places in regions (Albania, Serbia, Montenegro, Macedonia, Bosnia and Herzegovina, etc.).The main purpose of this paper is to classify some factors that influence credit risk in commercial banks in Kosovo. The research includes seven commercial banks for the period 2006–2015. Data analysis and interpretation are processed with Statistical Program for Social Sciences SPSS v.19.0.The effect of variations in the determinants of credit risk exposure is based on using a multivariate panel regression model. Our empirical results suggest that a significant relationship exists between credit risk and the following variables: Profitability (ROE and ROA), Inefficiency (IE), Loans to deposit ratio (LDR), Credit growth (CG) and Deposit rate (DR), while variables of Solvency (SR) and Credit rate (CR) are not statistically significant in terms of credit risk.

Predicting Systemic Banking Crises Using Early Warning Models: The Case of Montenegro

AbstractVery high costs of systemic banking crises emphasize the importance of early warning models for these crises. In order to create an early warning model for systemic banking crises a combined approach is implemented. The first approach applied in this paper is signal approach, however, with some modifications as compared with its standard application in the literature. On the basis of individual indicators two composite indices are created. Unlike other papers in this field, the author has chosen a 24-month period before the beginning of the crisis as a signal horizon, while the signal horizon in the literature is usually considered to be a period of 12 months before and 12 months after the crisis onset. The second approach represents logit model whereas the independent variables are actually the indicators with the best performances obtained within the signal approach. In order to check the robustness of indicators, the Bayesian model averaging technique is used. The indicator that represents the credit growth rate, besides being a part of the composite index, is statistically significant in all estimated specifications of the logit model, including the technique of Bayesian model averaging. Additionally, trends in the international market have a significant influence on the domestic banking system and its stability, and hence also on the probability of occurrence of a systemic banking crisis.

Are global shocks leading indicators of currency crisis in Viet Nam?

This paper aims to identify leading indicators of a currency crisis in Viet Nam based on an early warning system for the period 1996–February 2016. This paper found that global financial shocks (e.g., regional and global financial crisis, unexpected changes in monetary policy of largest economies such as the United States and the People’s Republic of China), and domestic credit growth rate are leading indicators of a currency crisis in Viet Nam in all three models. Deficits in trade balance, international reserves, and overvaluation of the dong are also good indicators. In addition, a model in which a currency crisis or turbulence in the foreign exchange market is defined based on the exchange market pressure and parallel market premium, with window length of 2 months, outperformed for predicting a currency crisis in Viet Nam. Empirical results suggested that probability of predicting a true currency crisis was 77.5%.

Lending Organization and Credit Supply During the 2008–2009 Crisis

Using a dataset that combines bank organizational variables, information on firms' credit demand and balance sheet indicators, we investigate the impact of lending organization on credit dynamics during the 2008–2009 crisis period. Our main findings suggest that the variables shaping the organization of a bank in its lending to non‐financial firms have a complex impact on its ability to expand credit. Banks that made substantial use of credit scoring techniques actually reduced their credit expansion during the economic downturn. At the same time, banks that delegated more power to their branch managers were likely to expand loans at a higher rate. Finally, contrary to the evidence from the pre‐crisis period, we find that longer branch manager tenure in the same branch is detrimental to the credit growth rate. These findings are robust to a wide set of robustness checks.

An Eclectic Credit Cycle Search: The Case of US, Japan and Germany

Credit crunches, quantitative easing and especially international credit cycles are all monetary facets of the still ongoing global economic crisis and financial turmoil. This paper investigates global credit cycle fundamental characteristics, among three leading economies; that is, the USA, Japanese and German. Our statistically sophisticated time series data come from the Bank of International Settlements (BIS) open source. These valuable data cover the period of complete time series, from 1970(Q1) up to 2015(Q1), covering the whole data availability period for these three economic leaders. We indicate that during the 70’s and the first decade of the 21st century, we face significant statistical evidence that credit supply shocks in particular, in economies that lead capitalism globally, affect each other economy quite seriously. The credit data confirm more the presence of an international credit cycle, in the sense that credit growth rates, in these three leading economies in particular, move together over time. We also verify, through classic impulse response analysis, that US credit supply shocks have a stronger effect upon the Japanese and German credit supply variable, for both the 1973 and most significantly the 2008 financial crisis years.

CREDIT AND ECONOMIC REGENERATION AFTER THE FINANCIAL CRISIS IN CESEE

The global financial crisis terminated lending growth rates in CESEE countries, and seven years after financial global crisis, bank credit still continues with depression rate. Demand and supply for bank credit are contracted, as a results of various factors. The paper tries to find the level of credit contraction and factors that may have affected it, as well as policy action which are being taken to improve bank performance. Economic activity on the other hand, despite the depressed credit growth rates seem to show a trend of regeneration. This phenomenon of increasing economic activity without the support of the loan seems is happening in this post-crisis period in CESEE countries, although we must say that it remains undesirable phenomenon.

Analyse and Survey Variables of Macroeconomic Effects on Credit Risk of Bank Mellat

Trying to identify, measure and manage credit risk in the banking system is crucial. Given that on the one hand financing system of the country is bank-based and on the other hand lack of proper investigation in the credit risk area lead to a reduction in the allocation of resources in the form of loans and has been increased the non-performing loan. Therefore, concerning about credit risk and its reduction strategies has grown. In this study attempted to examine the impact of macro-economic features, such as GDP, inflation, rate of GDP growth, imports goods and final services, rate of nominal interest, amount of credit risk in the last period and the growth rate of facility to be addressed in Credit risk of the Mellat Bank.Moreover, the effects of macroeconomic conditions on credit risk are investigated. In this regard, credit risk of 52 active branches of Mellat Bank with variables such as GDP growth, GDP rates, inflation ,credit growth and nominal interest rate since 1386 to 1391 has been measured by using panel data. To do this, combination of cross-sectional and time-series data (panel data) are used. That means relation between the variables evaluated and tested by using econometric methods such as data compilation methodology (panel data). To estimate the model, to select the best model of conventional panel data, fixed effects and random effects, the F and Housman tests will be done. In this regard, E-views software utilized and Excel for calculation of variables has been used. Based on the results of research the effect of nominal interest rate, facility growth rate and the grow rate of GDP on the credit risk is significant and positive in contrast, the inflation rate has had a negative effect on credit risk.

Foreign capital and credit expansion in Albanian banking system

This article aims to examine the role of foreign banks in credit expansion in Albania. The financial system in Albania is a bank based financial system. The role of bank credit in the Albanian economy has been significantly increased especially after 2000, when large capital inflows entered in the banking system. The entrance of foreign banks has been influenced by several factors such as profit orientation, privatization process, trade relationships etc. The rapid development of banking system was associated with credit expansion. Therefore the credit growth has been very fast. Has the bank credit expansion been a normal consequence of the fast financial development in Albania? Based on the literature, this article will answer to this question examining the credit growth rates in Albania, after 2000. The data used in this article will be of secondary type, based on the official statistics published by respective institutions.

Can non-interest rate policies stabilize housing markets? Evidence from a panel of 57 economies

This paper investigates the effectiveness of nine non-interest rate policies on house prices and housing credit using data from 57 economies and periods of up to three decades. We find that introductions or reductions in the maximum debt-service-to-income ratio, and increases in housing-related taxes, have significant negative effects on housing credit, with a typical tightening action lowering the real credit growth rate by 4–6 percentage points and by 3–4 percentage points, respectively, over the subsequent four quarters. Increases in housing-related taxes moderate house price growth, with a typical increase slowing real house price appreciation by 3–4 percentage points over the same horizon.

Not all credit is created equal: Mortgage vs non-mortgage debt and private saving rate in Turkey

The private saving rate in Turkey has decreased substantially since 2000. In this study, we investigate the determinants of the private saving rate in Turkey, with a special focus on the role of mortgage debt. We find a strong and robust negative effect of mortgage credit growth on private saving rate. Non-mortgage consumer credit growth also has a negative and robust effect on private saving rate, though its effect is smaller than that of mortgage credit. Business credit growth, on the other hand, has a positive impact on private saving rate. Our results provide strong support for the argument that the high growth rate of consumer credit is a primary reason for the recent decrease in private saving rate in Turkey. We also find that private saving rate displays strong persistence, and public saving rate partially crowds out private saving rate. In addition, per capita real income growth rate and macroeconomic uncertainty have positive impact on private saving rate.

The macroeconomic effects of debt- and equity-based capital inflows

This paper considers whether debt-based capital inflows have different effects on many short-run macroeconomic indicators than equity-based capital inflows. Using external instruments in a structural VAR for identification, we estimate the response of domestic variables like the output gap, inflation, the exchange rate, stock prices, credit growth, and interest rates to an exogenous shock to debt- or equity-based capital inflows. An exogenous increase in debt inflows leads to a significant increase in the output gap, inflation, stock prices and credit growth and an appreciation of the exchange rate. An exogenous increase in equity-based capital inflows has almost no effect on the same variables. Thus the short-run macroeconomic effects of exogenous capital inflows are almost entirely due to changes in debt, not equity-based, capital inflows.

Is There a Credit Crunch in the Czech Republic?

We apply a disequilibrium model of credit demand and supply to test the credit crunch hypothesis. We suppose that firms face credit rationing and a realised outstanding loan will be the minimum desired level of commercial bank loans and bank limit for the firm. We adopted the disequilibrium model which consists of credit supply and credit demand equations. We suggest that actual observed credit growth rate at time t lies on the supply curve (excess demand), or on the demand curve (excess supply), or on both (equilibrium). Our model is estimated by the full-information maximum likelihood approach with a numerical maximization of the likelihood function. Our basic findings show that significant decrease in credits after the financial crisis in the year 2007 was caused by low economic and investment activity and reject the hypothesis that there is a credit crunch in the Czech Republic.

Capital inflows, exchange rate regimes and credit dynamics in emerging market economies

This paper investigates the impact of the exchange rate regime (ERR) on the cycle of capital flows, the private credit growth rate and the level of dollarization in emerging market economies. We consider two different panels including 12 and 22 countries over the periods 1980–2010 and 1994–2008, respectively. We estimate a Panel Smooth Transition Regression (PSTR) model in order to assess whether the impact of ERR on credit dynamics is affected by the cyclical component of capital flows. Our findings are threefold. First, the ERR has no impact on the cyclical component of capital flows. Second, credit expansion is procyclical in economies with pegged currencies. Third, during capital inflows or low outflows periods, economies with fixed exchange rate regimes show a higher level of dollarization. When outflows are sizeable, ERR no longer impacts the level of dollarization. These results suggest that ERR should be an important variable in conceiving the policy mix to cope with domestic credit expansions and liability dollarization.

Early Warning System of Currency Crisis Based on Exchange Market Pressure: The Case of Vietnam

The paper aims at identifying leading indicators and a suitable EWS model of a currency crisis in Vietnam based on a combination of parametric and non-parametric approach with the EMP index for period 1996-July 2012. The paper found that model in which dependent variable - CC is defined based on the EMP and other event, and all explanatory variables are expressed in its absolute values with window length of 2 months is outperformed for predicting a currency crisis in Vietnam. Empirical results suggested that probability of predicting a true currency crisis was 80.7 percent; probability of predicting a crisis-hit period with signal was 94 percent. In addition, empirical evidence concluded that real overvaluation, international reserves in import’s weeks, and domestic credit growth rate are leading indicators of a currency crisis in Vietnam. The other indicators such as deficits in trade balance, industrial production value, money supply growth rate could be a good indicator but are all insignificant.

Monetary policy and dynamic adjustment of corporate investment: A policy transmission channel perspective

We investigate monetary policy effects on corporate investment adjustment, using a sample of China’s A-share listed firms (2005–2012), under an asymmetic framework and from a monetary policy transmission channel perspective. We find that corporate investment adjustment is faster in expansionary than contractionary monetary policy periods. Monetary policy has a significant effect on adjustment speed through monetary and credit channels. An increase in the growth rate of money supply or credit accelerates adjustment. Both effects are significantly greater during tightening than expansionary periods. The monetary channel has significant asymmetry, whereas the credit channel has none. Leverage moderates the relationship between monetary policy and adjustment, with a greater effect in expansionary periods. This study enriches the corporate investment behavior literature and can help governments develop and optimize macro-control policies.

Bank Specific Determinants of Credit Risk - An Empirical Study on the Banking Sector of Bosnia and Herzegovina

The main aim of this paper is to examine the influence of bank specific determinants on realization of credit risk in the portfolio of commercial banks in Bosnia and Herzegovina (B&H). This study comprises a sample of seventeen out of twenty eight planned banks that are analyzed over the period of 2002 to 2012. The effect of variations in the determinants of bank credit risk exposure is based on using a multivariate panel regression model. Our empirical results suggest that a significant relationship exists between credit risk and the following variables:[Inefficiency (IE), profitability (ROE), Credit growth (CG) and Deposit rate (DR) while variables Solvency (SR), Loans to deposit ratio (LTD), Market power (MP), profitability (ROA) and Reserve ratio (RR)] are not statistically significant in terms of credit risk.