IDEAS home Printed from https://ideas.repec.org/a/tcb/cebare/v22y2022i3p109-117.html
   My bibliography  Save this article

Is bank risk appetite relevant to bank default in times of Covid-19?

Author

Listed:
  • Pei-Ling Lee
  • Chun-Teck Lye
  • Chin Lee

Abstract

The paper aims to analyze the effect of bank risk appetite on banks' default probabilities during the year of COVID-19 in 12 countries while controlling for bank-specific and country-specific effects over time. A System Generalized Methods of Moments (GMM) model of default probabilities is estimated over the periods 2010–2021. This study confirms the ‘risk-mitigation view’, in which banks with higher ESG scores are more prudent in lending and have better relationship management, reducing the probability of bank default. Underperforming banks tend to have a higher portion of risky loans in their credit portfolio and therefore demonstrating a higher default propensity. Bank risk appetite, ESG, asset quality, economic growth, and currency depreciation appear to be material drivers for bank risk. We find that a lower risk appetite ratio (corresponding to higher risk appetite) is associated with higher estimated default probability during the COVID-19 outbreak, identified through interaction with a single time dummy for 2020 (the break-out year of the pandemic). ######### keywords

Suggested Citation

  • Pei-Ling Lee & Chun-Teck Lye & Chin Lee, 2022. "Is bank risk appetite relevant to bank default in times of Covid-19?," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 22(3), pages 109-117.
    • Handle: RePEc:tcb:cebare:v:22:y:2022:i:3:p:109-117
    as

    Download full text from publisher

    File URL: https://www.sciencedirect.com/science/article/pii/S130307012200021X
    Download Restriction: no
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tcb:cebare:v:22:y:2022:i:3:p:109-117. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge or the person in charge or the person in charge or the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/tcmgvtr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.