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The impact of natural disasters on bank performance and the moderating role of financial integration

Author

Listed:
  • Dung Thi Thuy Nguyen
  • Ivan Diaz-Rainey
  • Helen Roberts
  • Minh Le

Abstract

Using a sample of East Asian banks covering the period 1999–2014, this paper analyses the impact of natural disasters on commercial bank performance and how financial integration moderates this relationship. A dynamic GMM model reveals that natural disasters significantly lower deposit ratios but have no contemporaneous relationship with liquidity, credit risk, profitability and default risk. There is also evidence of a lagged effect of disasters, increasing deposits and lowering liquidity one year after the event. Furthermore, foreign banking claims, specifically those extended by regional Asian lenders, help to alleviate the deposits decline in the aftermath of natural disasters. These baseline findings are mainly driven by severely affected countries. Overall, the paper highlights the role of commercial bank deposits and foreign banking claims as sources of finance for post-disaster recovery. In particular, the resilience of Asian foreign claims in the event of natural disasters provides evidence to support intra-regional financial integration in East Asia.

Suggested Citation

  • Dung Thi Thuy Nguyen & Ivan Diaz-Rainey & Helen Roberts & Minh Le, 2024. "The impact of natural disasters on bank performance and the moderating role of financial integration," Applied Economics, Taylor & Francis Journals, vol. 56(8), pages 918-940, February.
    • Handle: RePEc:taf:applec:v:56:y:2024:i:8:p:918-940
    DOI: 10.1080/00036846.2023.2174931
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