Trade uncertainty and bank credit growth: evidence from China and the European Union countries

• Main Authors: Noordin, Nazrul Hazizi, Mohd Rasid, Mohamed Eskandar Shah
• Format: Article
• Language: English; English
• Published: Bank Indonesia Institute 2024
• Subjects: HF1014 Balance of trade; HG1501 Banking
• Online Access: http://irep.iium.edu.my/112530/1/112530_Trade%20uncertainty%20and%20bank%20credit%20growth.pdf; http://irep.iium.edu.my/112530/2/112530_Trade%20uncertainty%20and%20bank%20credit%20growth_SCOPUS.pdf; http://irep.iium.edu.my/112530/; https://bulletin.bmeb-bi.org/bmeb/vol27/iss2/5/
• Institution: Universiti Islam Antarabangsa Malaysia

This paper examines the relationship between trade uncertainty and bank lending using a sample of commercial banks in China and the European Union (EU) countries during the period of heightened trade uncertainty from 2017Q1 to 2021Q3 measured by the World Trade Uncertainty (WTU) index. We show that trade uncertainty slows bank credit growth. We find no significant difference in the lending response to trade uncertainty between Chinese and EU banks. Our additional analyses indicate that the credit-reducing effect of trade uncertainty is stronger for better-capitalised banks and more liquid banks. We also find that trade uncertainty is negatively associated with the growth of different bank funding sources, namely, customer deposits, liabilities, and equity. However, we do not find significant evidence that trade uncertainty affects bank credit risk.