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The Effects of Bank Ownership on Lending Behaviour for Different Types of Loans Throughout the Business Cycle

by Haifeng Huang, Bingjie Shen, Tao Wang

ARTICLE | International Finance | Forthcoming


This paper examines the correlation between banks' ownership structure and lending behaviour in China using micro‐level data on China's banks during the 2003–2015 period to identify possible different patterns in bank lending supply responses to changes in the economic environment, with a focus on understanding whether bank lending patterns follow procyclical or countercyclical allocation rules. We analyse how different types of loans correlate with bank ownership and find that state‐owned banks and banks with relatively higher levels of government ownership follow more countercyclical lending allocation rules, which indicates that China's government uses the financial sector as an instrument to mitigate procyclicality in lending behaviour. We further find that the loan allocation patterns vary significantly for different types of loans in China. In particular, individual consumer loans and corporate loans exhibit clear countercyclical patterns—particularly among state‐owned banks—while residential mortgages show much smoother patterns over time and seem to be less affected by the business cycle.
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