A Cross-country Study of Determinants of Bank Credit

The COVID-19 pandemic significantly impacted bank advances in both developing economies and advanced economies (AEs). After a noticeable period of low activity during the pandemic, bank credit recovered significantly across both advanced and developing economies. We explore the determinants of credit growth patterns and examine the role of fiscal stimulus in influencing bank credit across the two country groups and probe whether there were differences in bank credit dynamics. We find that domestic and foreign deposit liabilities, gross domestic product (GDP) growth, inflation and return on assets of banks have a salutary influence on bank credit. Fiscal stimulus implemented by the countries during the COVID-19 pandemic was also found to support bank credit growth. On the contrary, non-performing assets, credit–GDP ratio, federal funds rate and exchange rate movements were found to have an inhibitory impact on bank credit. We find noticeable differences in bank credit dynamics between the two country groups. The findings have significant policy implications as they may help policymakers in the effective design of monetary and fiscal policies to influence bank advances, especially during economic downturn phases.