IDEAS home Printed from https://ideas.repec.org/a/eee/ecofin/v57y2021ics1062940821000723.html
   My bibliography  Save this article

The impact of economic uncertainty and geopolitical risks on bank credit

Author

Listed:
  • Demir, Ender
  • Danisman, Gamze Ozturk

Abstract

This paper compares the effects of economic uncertainty and geopolitical risks on bank credit growth. Using a sample of 2439 banks from 19 countries for the period of 2010–2019, our findings indicate that economic uncertainty causes a significant decrease in overall bank credit growth while no such significant overall effect of geopolitical risks is documented. Further analysis on loan types shows that the highest negative impact of economic uncertainty is observed on corporate loans. Geopolitical risk, however, dampens consumer and mortgage loans. Additional analyses on bank heterogeneity reveal that the credit behavior of foreign and publicly listed banks are more immune to such risks.

Suggested Citation

  • Demir, Ender & Danisman, Gamze Ozturk, 2021. "The impact of economic uncertainty and geopolitical risks on bank credit," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:ecofin:v:57:y:2021:i:c:s1062940821000723
    DOI: 10.1016/j.najef.2021.101444
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062940821000723
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.najef.2021.101444?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Dario Caldara & Matteo Iacoviello, 2022. "Measuring Geopolitical Risk," American Economic Review, American Economic Association, vol. 112(4), pages 1194-1225, April.
    2. Bouvatier, Vincent & Lepetit, Laetitia & Strobel, Frank, 2014. "Bank income smoothing, ownership concentration and the regulatory environment," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 253-270.
    3. Beck, Thorsten & De Jonghe, Olivier & Schepens, Glenn, 2013. "Bank competition and stability: Cross-country heterogeneity," Journal of Financial Intermediation, Elsevier, vol. 22(2), pages 218-244.
    4. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
    5. Allen, Franklin & Jackowicz, Krzysztof & Kowalewski, Oskar & Kozłowski, Łukasz, 2017. "Bank lending, crises, and changing ownership structure in Central and Eastern European countries," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 494-515.
    6. Bilgin, Mehmet Huseyin & Danisman, Gamze Ozturk & Demir, Ender & Tarazi, Amine, 2021. "Bank credit in uncertain times: Islamic vs. conventional banks," Finance Research Letters, Elsevier, vol. 39(C).
    7. Rangan Gupta & Giray Gozgor & Huseyin Kaya & Ender Demir, 2019. "Effects of geopolitical risks on trade flows: evidence from the gravity model," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 9(4), pages 515-530, December.
    8. R. T.A. de Haas & I. P.P van Lelyveld, 2004. "Foreign Bank Penetration and Private Sector Credit in Central and Eastern Europe," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 3(2), pages 125-151, August.
    9. Kannadhasan, M. & Das, Debojyoti, 2020. "Do Asian emerging stock markets react to international economic policy uncertainty and geopolitical risk alike? A quantile regression approach," Finance Research Letters, Elsevier, vol. 34(C).
    10. Cull, Robert & Martínez Pería, María Soledad, 2013. "Bank ownership and lending patterns during the 2008–2009 financial crisis: Evidence from Latin America and Eastern Europe," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 4861-4878.
    11. Thorsten Beck & Asli Demirgüç-Kunt, 2008. "Access to Finance: An Unfinished Agenda," The World Bank Economic Review, World Bank, vol. 22(3), pages 383-396, November.
    12. Nguyen, Canh Phuc & Le, Thai-Ha & Su, Thanh Dinh, 2020. "Economic policy uncertainty and credit growth: Evidence from a global sample," Research in International Business and Finance, Elsevier, vol. 51(C).
    13. Vincent Bouvatier & Laetitia Lepetit, 2012. "Effects of Loan Loss Provisions on Growth in Bank Lending: Some International Comparisons," International Economics, CEPII research center, issue 132, pages 91-116.
    14. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    15. Ellen R. McGrattan & Edward C. Prescott, 2005. "Taxes, Regulations, and the Value of U.S. and U.K. Corporations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(3), pages 767-796.
    16. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    17. repec:cii:cepiei:2012-q4-132-3 is not listed on IDEAS
    18. Bordo, Michael D. & Duca, John V. & Koch, Christoffer, 2016. "Economic policy uncertainty and the credit channel: Aggregate and bank level U.S. evidence over several decades," Journal of Financial Stability, Elsevier, vol. 26(C), pages 90-106.
    19. de Haas, Ralph & van Lelyveld, Iman, 2006. "Foreign banks and credit stability in Central and Eastern Europe. A panel data analysis," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 1927-1952, July.
    20. Bitar, Mohammad & Tarazi, Amine, 2019. "Creditor rights and bank capital decisions: Conventional vs. Islamic banking," Journal of Corporate Finance, Elsevier, vol. 55(C), pages 69-104.
    21. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    22. Hu, Shiwei & Gong, Di, 2019. "Economic policy uncertainty, prudential regulation and bank lending," Finance Research Letters, Elsevier, vol. 29(C), pages 373-378.
    23. Ender Demir & Giray Gozgor & Sudharshan Reddy Paramati, 2019. "Do geopolitical risks matter for inbound tourism?," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 9(2), pages 183-191, June.
    24. Das, Debojyoti & Kannadhasan, M. & Bhattacharyya, Malay, 2019. "Do the emerging stock markets react to international economic policy uncertainty, geopolitical risk and financial stress alike?," The North American Journal of Economics and Finance, Elsevier, vol. 48(C), pages 1-19.
    25. Gozgor, Giray & Demir, Ender & Belas, Jaroslav & Yesilyurt, Serkan, 2019. "Does economic uncertainty affect domestic credits? an empirical investigation," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 63(C).
    26. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    27. Mustafa Caglayan & Bing Xu, 2019. "Economic Policy Uncertainty Effects On Credit And Stability Of Financial Institutions," Bulletin of Economic Research, Wiley Blackwell, vol. 71(3), pages 342-347, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Danisman, Gamze Ozturk & Tarazi, Amine, 2024. "ESG activity and bank lending during financial crises," Journal of Financial Stability, Elsevier, vol. 70(C).
    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).
    3. Adediran, Idris A. & Swaray, Raymond, 2023. "Carbon trading amidst global uncertainty: The role of policy and geopolitical uncertainty," Economic Modelling, Elsevier, vol. 123(C).
    4. Li, Qian & Zhou, Ruodan & Xiong, Jie & Wang, Yanxi, 2023. "Rushing through the clouds, or waiting to die? The effect of the green credit policy on heavily polluting firms," The North American Journal of Economics and Finance, Elsevier, vol. 64(C).
    5. He, Zhifang, 2023. "Geopolitical risks and investor sentiment: Causality and TVP-VAR analysis," The North American Journal of Economics and Finance, Elsevier, vol. 67(C).
    6. Davidmac O. Ekeocha & Jonathan E. Ogbuabor & Oliver E. Ogbonna & Anthony Orji, 2023. "Economic policy uncertainty, governance institutions and economic performance in Africa: are there regional differences?," Economic Change and Restructuring, Springer, vol. 56(3), pages 1367-1431, June.
    7. Ben Nouir, Jihed & Ben Haj Hamida, Hayet, 2023. "How do economic policy uncertainty and geopolitical risk drive Bitcoin volatility?," Research in International Business and Finance, Elsevier, vol. 64(C).
    8. Shouwei Li & Xin Wu, 2023. "How does climate risk affect bank loan supply? Empirical evidence from China," Economic Change and Restructuring, Springer, vol. 56(4), pages 2169-2204, August.
    9. Phan, Dinh Hoang Bach & Tran, Vuong Thao & Iyke, Bernard Njindan, 2022. "Geopolitical risk and bank stability," Finance Research Letters, Elsevier, vol. 46(PB).
    10. Kai‐Hua Wang & Zu‐Shan Wang & Hong‐Wen Liu & Xin Li, 2023. "Economic policy uncertainty and geopolitical risk: evidence from China and Southeast Asia," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 37(2), pages 96-118, November.
    11. Jamil, Abd Rahim Md. & Law, Siong Hook & Mohamad Khair-Afham, M.S. & Trinugroho, Irwan, 2023. "Financial inclusion and economic uncertainty in developing countries: The role of digitalisation," Economic Analysis and Policy, Elsevier, vol. 79(C), pages 786-806.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Danisman, Gamze Ozturk & Demir, Ender & Ozili, Peterson, 2021. "Loan loss provisioning of US banks: Economic policy uncertainty and discretionary behavior," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 923-935.
    2. Danisman, Gamze Ozturk & Ersan, Oguz & Demir, Ender, 2020. "Economic policy uncertainty and bank credit growth: Evidence from European banks," Journal of Multinational Financial Management, Elsevier, vol. 57.
    3. Dang, Van Dan & Nguyen, Hoang Chung, 2022. "Bank profitability under uncertainty," The Quarterly Review of Economics and Finance, Elsevier, vol. 83(C), pages 119-134.
    4. Dang, Van Dan, 2022. "Bank liquidity creation under micro uncertainty: The conditioning role of income structure," Economic Modelling, Elsevier, vol. 112(C).
    5. Bilgin, Mehmet Huseyin & Danisman, Gamze Ozturk & Demir, Ender & Tarazi, Amine, 2021. "Economic uncertainty and bank stability: Conventional vs. Islamic banking," Journal of Financial Stability, Elsevier, vol. 56(C).
    6. Bilgin, Mehmet Huseyin & Danisman, Gamze Ozturk & Demir, Ender & Tarazi, Amine, 2021. "Bank credit in uncertain times: Islamic vs. conventional banks," Finance Research Letters, Elsevier, vol. 39(C).
    7. Gamze Ozturk Danisman & Amine Tarazi, 2021. "Economic policy uncertainty and bank stability," Working Papers hal-03259298, HAL.
    8. Gamze Ozturk Danisman & Ender Demir, 2021. "The Effect of Pandemics on Domestic Credit: A Cross-country Analysis," Economics Bulletin, AccessEcon, vol. 41(2), pages 444-456.
    9. Shabir, Mohsin & Jiang, Ping & Bakhsh, Satar & Zhao, Zhongxiu, 2021. "Economic policy uncertainty and bank stability: Threshold effect of institutional quality and competition," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    10. Shabir, Mohsin & Jiang, Ping & Hashmi, Shujahat Haider & Bakhsh, Satar, 2022. "Non-linear nexus between economic policy uncertainty and bank lending," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 657-679.
    11. Desalegn, Tigist Abebe & Zhu, Hongquan, 2021. "Does economic policy uncertainty affect bank earnings opacity? Evidence from China," Journal of Policy Modeling, Elsevier, vol. 43(5), pages 1000-1015.
    12. Carmen Orden‐Cruz & Jessica Paule‐Vianez & Júlio Lobão, 2023. "The effect of Economic Policy Uncertainty on the credit risk of US commercial banks," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 3420-3436, July.
    13. Jamil, Abd Rahim Md. & Law, Siong Hook & Mohamad Khair-Afham, M.S. & Trinugroho, Irwan, 2023. "Financial inclusion and economic uncertainty in developing countries: The role of digitalisation," Economic Analysis and Policy, Elsevier, vol. 79(C), pages 786-806.
    14. Nguyen Phuc Canh & Nguyen Thanh Binh & Su Dinh Thanh & Christophe Schinckus, 2020. "Determinants of foreign direct investment inflows: The role of economic policy uncertainty," International Economics, CEPII research center, issue 161, pages 159-172.
    15. Małgorzata Iwanicz-Drozdowska & Paola Bongini & Paweł Smaga & Bartosz Witkowski, 2019. "The role of banks in CESEE countries: exploring non-standard determinants of economic growth," Post-Communist Economies, Taylor & Francis Journals, vol. 31(3), pages 349-382, May.
    16. Nguyen, Canh Phuc & Lee, Gabriel S., 2021. "Uncertainty, financial development, and FDI inflows: Global evidence," Economic Modelling, Elsevier, vol. 99(C).
    17. Caixe, Daniel Ferreira, 2022. "Corporate governance and investment sensitivity to policy uncertainty in Brazil," Emerging Markets Review, Elsevier, vol. 51(PB).
    18. Zins, Alexandra & Weill, Laurent, 2018. "Cyclicality of lending in Africa: The influence of bank ownership," Emerging Markets Review, Elsevier, vol. 37(C), pages 164-180.
    19. Charles Mawusi, 2021. "Economic Uncertainty and Remittances to Developing Economies: A System GMM Approach," Working Papers hal-03147813, HAL.
    20. Doan, Anh-Tuan & Phan, Thu & Lin, Kun-Li, 2020. "Governance quality, bank price synchronicity and political uncertainty," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 231-262.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecofin:v:57:y:2021:i:c:s1062940821000723. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620163 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.