Is bank risk appetite relevant to bank default in times of Covid-19?
The paper aims to analyze the effect of bank risk appetite on banks' default probabilities during the year of COVID-19 in 12 countries while controlling for bank-specific and country-specific effects over time. A System Generalized Methods of Moments (GMM) model of default probabilities is esti...
| Principais autores: | , , |
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| Formato: | Artigo |
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Elsevier
2022
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| _version_ | 1825938630510641152 |
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| author | Lee, Pei Ling Lye, Chun Teck Lee, Chin |
| author_facet | Lee, Pei Ling Lye, Chun Teck Lee, Chin |
| author_sort | Lee, Pei Ling |
| collection | UPM |
| description | The paper aims to analyze the effect of bank risk appetite on banks' default probabilities during the year of COVID-19 in 12 countries while controlling for bank-specific and country-specific effects over time. A System Generalized Methods of Moments (GMM) model of default probabilities is estimated over the periods 2010–2021. This study confirms the ‘risk-mitigation view’, in which banks with higher ESG scores are more prudent in lending and have better relationship management, reducing the probability of bank default. Underperforming banks tend to have a higher portion of risky loans in their credit portfolio and therefore demonstrating a higher default propensity. Bank risk appetite, ESG, asset quality, economic growth, and currency depreciation appear to be material drivers for bank risk. We find that a lower risk appetite ratio (corresponding to higher risk appetite) is associated with higher estimated default probability during the COVID-19 outbreak, identified through interaction with a single time dummy for 2020 (the break-out year of the pandemic). |
| first_indexed | 2024-03-06T11:16:23Z |
| format | Article |
| id | upm.eprints-102011 |
| institution | Universiti Putra Malaysia |
| last_indexed | 2024-03-06T11:16:23Z |
| publishDate | 2022 |
| publisher | Elsevier |
| record_format | dspace |
| spelling | upm.eprints-1020112023-08-15T03:58:50Z http://psasir.upm.edu.my/id/eprint/102011/ Is bank risk appetite relevant to bank default in times of Covid-19? Lee, Pei Ling Lye, Chun Teck Lee, Chin The paper aims to analyze the effect of bank risk appetite on banks' default probabilities during the year of COVID-19 in 12 countries while controlling for bank-specific and country-specific effects over time. A System Generalized Methods of Moments (GMM) model of default probabilities is estimated over the periods 2010–2021. This study confirms the ‘risk-mitigation view’, in which banks with higher ESG scores are more prudent in lending and have better relationship management, reducing the probability of bank default. Underperforming banks tend to have a higher portion of risky loans in their credit portfolio and therefore demonstrating a higher default propensity. Bank risk appetite, ESG, asset quality, economic growth, and currency depreciation appear to be material drivers for bank risk. We find that a lower risk appetite ratio (corresponding to higher risk appetite) is associated with higher estimated default probability during the COVID-19 outbreak, identified through interaction with a single time dummy for 2020 (the break-out year of the pandemic). Elsevier 2022 Article PeerReviewed Lee, Pei Ling and Lye, Chun Teck and Lee, Chin (2022) Is bank risk appetite relevant to bank default in times of Covid-19? Central Bank Review, 22 (3). 109 - 117. ISSN 1303-0701; ESSN: 2524-1699 https://www.sciencedirect.com/science/article/pii/S130307012200021X 10.1016/j.cbrev.2022.08.003 |
| spellingShingle | Lee, Pei Ling Lye, Chun Teck Lee, Chin Is bank risk appetite relevant to bank default in times of Covid-19? |
| title | Is bank risk appetite relevant to bank default in times of Covid-19? |
| title_full | Is bank risk appetite relevant to bank default in times of Covid-19? |
| title_fullStr | Is bank risk appetite relevant to bank default in times of Covid-19? |
| title_full_unstemmed | Is bank risk appetite relevant to bank default in times of Covid-19? |
| title_short | Is bank risk appetite relevant to bank default in times of Covid-19? |
| title_sort | is bank risk appetite relevant to bank default in times of covid 19 |
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