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Shock contagion, asset quality and lending behavior

Author

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  • Pham, Tho
  • Talavera, Oleksandr
  • Tsapin, Andriy
Abstract
This paper exploits the geopolitical conflict in Eastern Ukraine as a negative shock to banking sector and examines the shock transmission. We find that banks with more loans in the conflict areas during the pre-conflict period face a higher level of bad loans in other markets after the shock. This effect is stronger in the regional markets which are closer to the conflict zone. We also find evidence for the "flight to headquarters" effect in post-conflict lending. Specifically, while more affected banks tend to cut their credit supply, the larger contraction is observed in regional markets located farther from headquarters.

Suggested Citation

  • Pham, Tho & Talavera, Oleksandr & Tsapin, Andriy, 2018. "Shock contagion, asset quality and lending behavior," BOFIT Discussion Papers 21/2018, Bank of Finland Institute for Emerging Economies (BOFIT).
    • Handle: RePEc:zbw:bofitp:bdp2018_021
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    Cited by:

    1. Jose Arias & Oleksandr Talavera & Andriy Tsapin, 2020. "Bank Liquidity and Exposure to Industry Shocks," Discussion Papers 20-16, Department of Economics, University of Birmingham.
    2. Pham, Tho & Talavera, Oleksandr & Tsapin, Andriy, 2018. "Shock contagion, asset quality and lending behavior," BOFIT Discussion Papers 21/2018, Bank of Finland Institute for Emerging Economies (BOFIT).
    3. Jarko Fidrmuc & Serhiy Moroz & Fabian Reck, 2021. "Regional risk-sharing in Ukraine," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(3), pages 645-660, August.
    4. repec:zbw:bofitp:2020_025 is not listed on IDEAS
    5. Pham, Tho & Talavera, Oleksandr & Tsapin, Andriy, 2018. "Shock contagion, asset quality and lending behavior," BOFIT Discussion Papers 21/2018, Bank of Finland Institute for Emerging Economies (BOFIT).
    6. repec:zbw:bofitp:2018_021 is not listed on IDEAS
    7. Jarko Fidrmuc & Serhiy Moroz & Fabian Reck, 2021. "Regional risk-sharing in Ukraine," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 48(3), pages 645-660, August.

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    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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