Authors: Tho Pham, Oleksandr Talavera, Andriy Tsapin.
Abstract: We use the geopolitical conflict in eastern Ukraine as a negative shock to bank assets and examine the shock’s impact on the banking sector. We find banks were more severely affected by the conflict if they had more loans outstanding in the conflict areas before the shock. These banks, consequently, are more likely to experience an increase in troubled assets and a reduction in credit supply. Further analysis offers evidence of the “flight to headquarters” effect in credit allocation wherein more affected banks cut lending by a greater amount in markets located farther from headquarters.
Cite as: Pham, T., Talavera, O., Tsapin, A. (2018). Shock contagion, asset quality and lending behavior. NBU Working Papers, 1/2018. Kyiv: National Bank of Ukraine. Retrieved from https://bank.gov.ua/admin_uploads/article/wp_nbu_2018-1_eng.pdf.