Credit risk and financial integration

An application of network analysis

Mita Bhattacharya, John Nkwoma Inekwe, Maria Rebecca Valenzuela

Research output: Contribution to journalArticle

Abstract

Credit plays a significant role in the performance of the banking sector. This research relates financial integration to the credit risk of banks. We compute a measure of financial connectivity based on network statistics using syndicated loans. Using instrumental variable techniques for a panel of 39 countries over the periods of 1988 to 2014, we analyse the link between credit risk and financial integration. Our findings suggest that borrowing banks do not alleviate credit risk. Also, borrowing banks that are more active in the network also help to compound credit risk. However, the closeness centrality reveals a significant reduction in the credit risk of the borrowing banks. Our findings from individual countries reflect the significance of the country of operation of these banks in the international market.
Original languageEnglish
Article number101588
Pages (from-to)1-14
Number of pages14
JournalInternational Review of Financial Analysis
Volume72
DOIs
Publication statusPublished - Nov 2020

Keywords

  • Finance
  • Interbank lending
  • Financial networks
  • Financial markets
  • Credit risk

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