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Does economic uncertainty affect the soundness of banks? Evidence from emerging Asian economies

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  • Wu, Ji
  • Yao, Yao
  • Chen, Minghua
  • Jeon, Bang Nam

Abstract

This paper examines the impact of economic uncertainty on four dimensions of banking soundness, namely, banks’ loan growth rates, interest rate spreads, capitalization and risk. By using the bank-level panel data of approximately 500 commercial banks in seven emerging Asian economies, we find consistent evidence that increased economic uncertainty decelerates banks’ loan growth, narrows their interest rate spreads and aggravates their risk, but induces banks to increase their capital holdings. Our results are shown to be robust in a series of checks that use alternative indicators of economic uncertainty and econometric methodologies.

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  • Wu, Ji & Yao, Yao & Chen, Minghua & Jeon, Bang Nam, 2021. "Does economic uncertainty affect the soundness of banks? Evidence from emerging Asian economies," Journal of Asian Economics, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:asieco:v:77:y:2021:i:c:s1049007821001238
    DOI: 10.1016/j.asieco.2021.101394
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    2. Shabir, Mohsin & Jiang, Ping & Shahab, Yasir & Wang, Peng, 2023. "Geopolitical, economic uncertainty and bank risk: Do CEO power and board strength matter?," International Review of Financial Analysis, Elsevier, vol. 87(C).

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    More about this item

    Keywords

    Economic uncertainty; Banking soundness; Emerging Asian economies;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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