Download This PaperRelated Party Lending and Bank Risk: Evidence During the COVID-19 Period
17 Pages Posted: 24 Feb 2023
Abstract
This study aims to investigate bank lending behaviors during the Covid-19 period and to examine the effect of related party lending (RPL) on risk. We posit there is significant change on the lending growth and related party lending proportion during this period. We utilize 517 rural banks in Indonesia using quarterly panel data from 2019 – 2021 to test the impact of RPL on risk and to further investigate its interaction with the COVID-19 using system GMM. We document that RPL is negatively linked to rural bank risk proxied by non-performing loan, loan loss provision and Z-score. Moreover, the COVID-19 moderates the relationship between RPL and risk. We also adopt several proxies and a split sample analysis to check for the robustness. Finally, we successfully identify lesson learned from the crisis and propose some implications for bank and authorities.
Keywords: related party lending, Covid-19, rural banks, risk, emerging market
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