International Commodity Prices and Domestic Bank Lending in Developing Countries

Isha Agarwal, Rupa Duttagupta and Andrea Presbitero
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Isha Agarwal: Asian Development Bank Institute
Rupa Duttagupta: Asian Development Bank Institute

No 807, ADBI Working Papers from Asian Development Bank Institute

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 bank specific 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.

Keywords: bank lending; commodity prices; macrofinancial linkages; developing countries (search for similar items in EconPapers)
JEL-codes: F30 F34 G21 Q02 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2018-02-12
New Economics Papers: this item is included in nep-ban, nep-fdg and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Working Paper: International Commodity Prices and Domestic Bank Lending in Developing Countries (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ris:adbiwp:0807

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