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Does Diversification Protect Bank Lending Against Uncertainty?

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  2. Economics, Finance, Business & Management
  3. Credit and Capital Markets – Kredit und Kapital
  4. Vol. 55, Issue 3
  5. pp. 349–379

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Dang, V., Nguyen, H. Does Diversification Protect Bank Lending Against Uncertainty?. Credit and Capital Markets – Kredit und Kapital, 55(3), 349-379. https://doi.org/10.3790/ccm.55.3.349
Dang, Van Dan and Nguyen, Hoang Chung "Does Diversification Protect Bank Lending Against Uncertainty?" Credit and Capital Markets – Kredit und Kapital 55.3, 2022, 349-379. https://doi.org/10.3790/ccm.55.3.349
Dang, Van Dan/Nguyen, Hoang Chung (2022): Does Diversification Protect Bank Lending Against Uncertainty?, in: Credit and Capital Markets – Kredit und Kapital, vol. 55, iss. 3, 349-379, [online] https://doi.org/10.3790/ccm.55.3.349
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Does Diversification Protect Bank Lending Against Uncertainty?

Dang, Van Dan | Nguyen, Hoang Chung

Credit and Capital Markets – Kredit und Kapital, Vol. 55 (2022), Iss. 3 : pp. 349–379

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Article Details

Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.55.3.349
Language
English
Pages
31
Keywords

Author Details

Assoc. Prof. Dr. Van Dan Dang, Department of Finance, Banking University of Ho Chi Minh City. Address: 36 Ton That Dam Street, Nguyen Thai Binh Ward, District 1, Ho Chi Minh City, Vietnam. ORCID: https://orcid.org/0000-0001-5524-8765.

Corresponding author. Dr. Hoang Chung Nguyen, Department of Finance and Banking, Business School, Thu Dau Mot University. Address: 06 Tran Van On Street, Phu Hoa Ward, Thu Dau Mot City, Binh Duong Province, Vietnam. ORCID: https://orcid.org/0000-0002-4067-0434.

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Abstract

The paper examines whether bank diversification in multiple dimensions can protect bank lending from uncertainty shocks. We use a panel of Vietnamese commercial banks during 2007 – 2019 for empirical analysis and measure uncertainty in banking by the dispersion of bank-level shocks. Our results confirm that banks may reduce loan growth and experience more credit risk amid greater uncertainty. These adverse impacts of uncertainty on bank lending (both quantity and quality) are significantly alleviated by bank diversification in the loan portfolio, income, and funding aspects. Our findings offer practical implications for regulators and banks themselves: bank diversification can effectively act as a lending shock absorber in periods of high uncertainty.

Table of Contents

Section Title Page Action Price
Van Dan Dang / Hoang Chung Nguyen: Does Diversification Protect Bank Lending Against Uncertainty? 349
Abstract 349
I. Introduction 349
II. Related Literature 352
1. Uncertainty and Bank Lending 352
2. The Role of Bank Diversification 353
III. Data and Methodology 355
1. Data Sources 355
2. Uncertainty and Bank Diversification Measures 355
a) Banking Uncertainty Measure 355
b) Bank Diversification Measure 356
3. Methodology 357
4. Summary Statistics of Variables 360
IV. Results 360
1. Estimation Results for Loan Growth 360
2. Estimation Results for Credit Risk 365
3. Robustness Checks 372
V. Conclusion 373
References 376

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