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How does credit supply react to a natural disaster? Evidence from the Indian Ocean Tsunami

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  • Linh Nguyen
  • John O. S. Wilson

Abstract

The supply of credit may increase or decrease following a natural disaster, depending on the extent to which banks can absorb risk, and the economic prospects and demand for finance by affected firms and households. In this paper, we assess the impact of a natural disaster (Indian Ocean Tsunami of 2004) on the aggregate supply of credit to provinces throughout Thailand. The results of our investigation suggest that the tsunami has long-lasting negative effects on bank lending, albeit the effects are spread unevenly across geographic areas with most of the reduction in aggregate lending occurring in severely affected provinces. We also find that the presence of bank branches in affected regions mitigates some of the adverse lending effects that follow the tsunami.

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  • Linh Nguyen & John O. S. Wilson, 2020. "How does credit supply react to a natural disaster? Evidence from the Indian Ocean Tsunami," The European Journal of Finance, Taylor & Francis Journals, vol. 26(7-8), pages 802-819, May.
    • Handle: RePEc:taf:eurjfi:v:26:y:2020:i:7-8:p:802-819
    DOI: 10.1080/1351847X.2018.1562952
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    Cited by:

    1. Barth, James R. & Hu, Qinyou & Sickles, Robin & Sun, Yanfei & Yu, Xiaoyu, 2024. "Direct and indirect impacts of natural disasters on banks: A spatial framework," Journal of Financial Stability, Elsevier, vol. 70(C).
    2. Li, Jie & An, Yahui & Wang, Lidan & Zhang, Yongjie, 2022. "Combating the COVID-19 pandemic: The role of disaster experience," Research in International Business and Finance, Elsevier, vol. 60(C).
    3. Fu, Zhenqi & Tao, Yunqing, 2022. "Land disasters and farmers’ private credit," Finance Research Letters, Elsevier, vol. 47(PB).
    4. Lee, Chien-Chiang & Wang, Chih-Wei & Hong, Pei-Hsuan & Lin, Weizheng, 2024. "Environmental policy stringency and bank risks: Does green economy matter?," International Review of Financial Analysis, Elsevier, vol. 91(C).
    5. Le, Anh-Tuan & Tran, Thao Phuong & Mishra, Anil V., 2023. "Climate risk and bank stability: International evidence," Journal of Multinational Financial Management, Elsevier, vol. 70.
    6. repec:liv:livedp:202219 is not listed on IDEAS
    7. Celil, Hursit S. & Oh, Seungjoon & Selvam, Srinivasan, 2022. "Natural disasters and the role of regional lenders in economic recovery," Journal of Empirical Finance, Elsevier, vol. 68(C), pages 116-132.
    8. Abedifar, Pejman & Kashizadeh, Seyed Javad & Ongena, Steven, 2024. "Flood, farms and credit: The role of branch banking in the era of climate change," Journal of Corporate Finance, Elsevier, vol. 85(C).

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