A COMPARATIVE STUDY OF BANK CREDIT CYCLES: STATE-OWNERSHIP AND ITS EFFECT ON LENDING BEHAVIOUR

Abstract

This paper investigates the lending cyclicality of state-owned banks across the business cycle by studying 4,334 banks, of which 317 are state-owned, across 101 countries. Firstly, I find that despite regional differences, state-owned bank lending is less procyclical than privately owned banks. Secondly, during recessionary years, state-owned bank lending dampens the effect of credit contraction by privately owned banks, either by not contracting credit as much, or through countercyclical lending. Thirdly, state-owned bank lending is typically more procyclical in Emerging Countries than in Developed Countries, indicating behavioural differences due to gaps in economic development. Lastly, state-owned bank lending is mostly significantly different from privately owned banks only in countries with a low concentration of state-owned banks in the banking system.