International Commodity Prices and Domestic Bank Lending in Developing Countries

By Isha Agrawal, Rupa Duttagupta, Andrea F Presbitero

December 14, 2017

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Isha Agrawal, Rupa Duttagupta, and Andrea F Presbitero. International Commodity Prices and Domestic Bank Lending in Developing Countries, (USA: International Monetary Fund, 2017) accessed September 23, 2024

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.

Summary

We study the role of the bank-lending channel in propagating fluctuations in commodity prices to credit aggregates and economic activity in developing countries. We use data on more than 1,600 banks from 78 developing countries to analyze the transmission of changes in international commodity prices to domestic bank lending. Identification relies on a bankspecific time-varying measure of bank sensitivity to changes in commodity prices, based on daily data on bank stock prices. We find that a fall in commodity prices reduces bank lending, although this effect is confined to low-income countries and driven by commodity price busts. Banks with relatively lower deposits and poor asset quality transmit commodity price changes to lending more aggressively, supporting the hypothesis that the overall credit response to commodity prices works also through the credit supply channel. Our results also show that there is no significant difference in the behavior of foreign and domestic banks in the transmission process, reflecting the regional footprint of foreign banks in developing countries.

Subject: Bank credit, Banking, Commodities, Commodity price fluctuations, Commodity prices, Credit, Money, Prices

Keywords: Asset quality, Bank characteristic, Bank credit, Bank health, Bank lending, Bank level, Bank ownership, Commodity export, Commodity export price index, Commodity price, Commodity price fluctuations, Commodity prices, Commodity sector, Credit, Developing countries, Global, Interaction term, Macro-financial linkages, Price change, Price index, Quality indicator, Sensitivity measure, WP

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/279
Stock No:

WPIEA2017279
ISBN:

9781484333044
ISSN:

1018-5941

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