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Shock Absorbers or Transmitters? The Role of Foreign Banks during COVID-19
Author:
Weijia Yaonull

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,
Anamika Sen
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Juan Yepeznull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2022: Issue 188
Language:
English
Publication Date:
16 Sep 2022
DOI:
https://doi.org/10.5089/9798400222030.001
ISBN:
9798400222030
ISSN:
1018-5941
Pages:
33
Keywords:
Policy announcements; financial conditions; credit; ownership; capital; liquidity; COVID-19.; bank ownership; ownership data; bank behavior; bank characteristic; domestic bank; bank size; Foreign banks; COVID-19; Bank credit; Credit ratings; Global; Central America; Central and Eastern Europe
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper studies whether bank ownership influenced lending behavior during the COVID-19 shock. It finds that, similar to previous episodes of financial distress, foreign banks appear to have played a shock-transmitting role, as there was a sharp slowdown in lending by foreign banks’ affiliates relative to domestic banks. However, given the uniqueness of the COVID-19 shock and the impact of lockdowns on economic activity, foreign banks were found to lend at a higher rate than domestic banks once the stringency of mobility restrictions is accounted for, with their lending portfolio concentrated more in the corporate sector. Results also suggest that the difference in lending rates between foreign and domestic banks could be explained by the heterogeneous effects of policy measures in response to the pandemic. In jurisdictions with more stringent mobility restrictions, policy interventions actually encouraged higher lending by foreign banks. These findings suggest that foreign bank presence may have acted as a shock absorber in jurisdictions where economic activity was most affected by the pandemic.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2022: Issue 188