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Good and Bad Credit Growth: Sectoral Credit Allocation and Systemic Risk

Author

Listed:
  • Alin Marius Andries

    (Alexandru Ioan Cuza University of Iasi; Romanian Academy - Institute for Economic Forecasting)

  • Steven Ongena

    (University of Zurich - Department Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR))

  • Nicu Sprincean

    (Faculty of Economics and Business Administration, Alexandru Ioan Cuza University of Iași; National Institute for Economic Research, Romanian Academy)

Abstract

We examine the association between sectoral credit dynamics and systemic risk. Contrary to most studies that only delve into broad-based credit development, we focus on sectoral credit allocation, specifically to households versus firms, and to the tradable versus non-tradable sector. Based on a global sample of 417 banks across 46 countries over the period 2000-2014, we find that lending to households and corporates in the non-tradable sector increases system-wide distress. Conversely, credit granted to corporations and to the tradable sector reduces banks’ systemic behavior. The findings emphasize critical policy implications considering sectoral heterogeneity. Authorities can intervene in the most systemic economic sectors and limit the accumulation of “bad credit” and preserve systemic resilience, while still benefiting from the positive impact of “good credit” on growth and financial stability.

Suggested Citation

  • Alin Marius Andries & Steven Ongena & Nicu Sprincean, 2024. "Good and Bad Credit Growth: Sectoral Credit Allocation and Systemic Risk," Swiss Finance Institute Research Paper Series 24-23, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2423
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    More about this item

    Keywords

    systemic risk; sectoral credit; financial stability;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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