Trade Uncertainty and Bank Credit Growth: Evidence from China and the European Union Countries

Authors

Nazrul Hazizi Noordin, IIUM Institute of Islamic Banking and FinanceFollow
Mohamed Eskandar Shah Mohd. Rasid, College of Islamic Studies, Hamad Bin Khalifa University, Doha, Qatar.Follow

Document Type

Article

Abstract

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. 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 Ahir et al.’s (2018) 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.

Recommended Citation

Noordin, Nazrul Hazizi and Mohd. Rasid, Mohamed Eskandar Shah (2024) "Trade Uncertainty and Bank Credit Growth: Evidence from China and the European Union Countries," Bulletin of Monetary Economics and Banking: Vol. 27: No. 2, Article 5.
DOI: https://doi.org/10.59091/2460-9196.1961
Available at: https://bulletin.bmeb-bi.org/bmeb/vol27/iss2/5

First Page

299

Last Page

326

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Country

Qatar

Affiliation

Hamad Bin Khalifa University