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International Commodity Prices and Domestic Bank Lending in Developing Countries

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  • Isha Agrawal
  • Rupa Duttagupta
  • Andrea F Presbitero

Abstract

We study the role of the bank-lending channel in propagating fluctuations in commodity prices to credit aggregates and economic activity in developing countries. We use data on more than 1,600 banks from 78 developing countries to analyze the transmission of changes in international commodity prices to domestic bank lending. Identification relies on a bankspecific time-varying measure of bank sensitivity to changes in commodity prices, based on daily data on bank stock prices. We find that a fall in commodity prices reduces bank lending, although this effect is confined to low-income countries and driven by commodity price busts. Banks with relatively lower deposits and poor asset quality transmit commodity price changes to lending more aggressively, supporting the hypothesis that the overall credit response to commodity prices works also through the credit supply channel. Our results also show that there is no significant difference in the behavior of foreign and domestic banks in the transmission process, reflecting the regional footprint of foreign banks in developing countries.

Suggested Citation

  • Isha Agrawal & Rupa Duttagupta & Andrea F Presbitero, 2017. "International Commodity Prices and Domestic Bank Lending in Developing Countries," IMF Working Papers 17/279, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:17/279
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    Cited by:

    1. Cheikh A. Gueye & Asithandile Mbelu & Amadou N Sy, 2019. "Coping with Falling Oil Prices: The Different Fortunes of African Banks," IMF Working Papers 19/129, International Monetary Fund.
    2. Miguel Biron & Felipe Córdova & Antonio Lemus, 2019. "Banks' business model and credit supply in Chile: the role of a state-owned bank," BIS Working Papers 800, Bank for International Settlements.
    3. Marina Tiunova, 2019. "Commodity and Financial Cycles in Resource-based Economies," Russian Journal of Money and Finance, Bank of Russia, vol. 78(3), pages 38-70, September.
    4. Carlos Cantú & Roberto Lobato & Calixto López & Fabrizio Lopez-Gallo, 2019. "A loan-level analysis of bank lending in Mexico," BIS Working Papers 802, Bank for International Settlements.

    More about this item

    Keywords

    Commodity prices; Loans; External shocks; Foreign banks; Developing countries; Bank credit; Financial crises; Commodity price indexes; Financial markets; Bank liquidity; Bank lending; Macro-financial linkages; General; International Lending and Debt Problems; Global Commodity Crises; commodity price; commodity sector; bank lend; listed bank; domestic bank;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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