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COVID-19 and bank branch lending: The moderating effect of digitalization

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  • Silva, Thiago Christiano
  • de Souza, Sergio Rubens Stancato
  • Guerra, Solange Maria
  • Tabak, Benjamin Miranda

Abstract

We examine how COVID-19 and digitalization have changed bank lending behavior. Using microdata from Brazil, we investigate the determinants of these changes at the bank branch level and by credit type. Branches in areas more affected by COVID-19 reduced loan issuances and experienced lower credit revenues. These branches could not adjust their costs in the short term due to this decline in lending, resulting in increased marginal costs. We also find that branches of more digitalized banks were less sensitive to local borrowers’ conditions and could expand their clientele. These branches extended credit to borrowers in remote localities less affected by COVID-19, positioning themselves better than branches of less digitalized banks. Our research highlights the critical role of digitalization in distressed periods, as it enables banks to respond more swiftly and effectively, favoring financial stability.

Suggested Citation

  • Silva, Thiago Christiano & de Souza, Sergio Rubens Stancato & Guerra, Solange Maria & Tabak, Benjamin Miranda, 2023. "COVID-19 and bank branch lending: The moderating effect of digitalization," Journal of Banking & Finance, Elsevier, vol. 152(C).
    • Handle: RePEc:eee:jbfina:v:152:y:2023:i:c:s0378426623000936
    DOI: 10.1016/j.jbankfin.2023.106869
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    6. Thiago Christiano Silva & Carlos Eduardo de Almeida, 2024. "COVID-19 and Supply Chain Disruptions: a novel perspective using a network of payments in Brazil," Working Papers Series 595, Central Bank of Brazil, Research Department.

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    More about this item

    Keywords

    COVID-19; Digitalization; Bank branch; Marginal cost; Bank lending; Credit type;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • I19 - Health, Education, and Welfare - - Health - - - Other
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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