Does investment in consumer finance companies impact credit allocation of banks? Evidence from China

Understanding how banks' strategic investments shape credit allocation is crucial for navigating financial market dynamics and promoting efficient resource distribution. This study investigates whether and how investments in consumer finance companies influence banks' credit allocation, using a multi-period difference-in-differences model and data from Chinese listed banks (2012–2022). The findings reveal that such investments significantly increase the allocation of personal and short-term loans, driven by reductions in loan interest rates, technological advancements, and intensified competition among banks. The effects are particularly pronounced for banks investing in consumer finance companies with IT enterprise backgrounds or lower shareholding ratios. Additionally, regional banks tend to expand unsecured loans, while national banks primarily increase the allocation of short-term and personal loans. This study highlights the critical role of investments in consumer finance companies and provides insights into the key factors shaping banks’ credit allocation strategies.