Bank lending and systemic risk: A banking-real sector network connectedness approach

Abstract

This study examined the connectedness between the banking sector and real sector in Nigeria using a network analysis approach. It sought to seek if the shock from the real sector can be transferred to the banking sector in the context of systemic risk analysis. The findings reveals that base on the bank credit transfer from the banking sector to other sectors, the bank-real sectors are closely connected. Consequent of this, shocks from the real sector can spillover to the banking sector and vice versa. The results also, shows that the transport sector is the net transmitter of shocks while, the construction sector is the net recipient of shocks. They dynamic connectedness analysis showed that over the period of study bank-real sector connectedness varies with time and in response to economic phenomena. The study recommends that systemic risk surveillance should not be limited to the financial sector alone. Again, development policies should explore other sectors too rather than banking solely on the traditional agriculture-manufacturing sector development policy.

Keywords: Bank Lending, Connectedness, Network, Real Sector, systemic risk

Article Review Status: Published

Pages: 17-30 (Download PDF)

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