Active Allocation of Commercial Bank Credit Asset Structure Under the Impact of the Epidemic

Abstract

The outbreak of the COVID-19 epidemic presents significant challenges not only to natural ecosystems, public health, and economic development but also exerts pressure on the financial sector through its repercussions on the real economy, thereby introducing negative risk factors within the financial domain. Given that China's financial system is predominantly characterized by commercial banks and relies heavily on indirect financing, the epidemic is expected to pose a series of challenges to this system, particularly concerning the risk profile of the banking sector and the allocation of its credit assets. In light of this context, the present study seeks to investigate the impact of the epidemic on the structural allocation of banks' credit assets, specifically examining whether commercial banks will proactively adjust their credit asset allocation in response to the objective risks posed by the epidemic. The findings indicate that the epidemic has adversely affected the credit scale structure of banks, leading to a reduction in credit allocation to collateralized loans and sectors particularly vulnerable to the effects of the epidemic. Secondly, the epidemic serves as a mechanism that influences the proactive allocation of credit assets by local commercial banks through an increase in their loan loss provisions. Moreover, the epidemic exerts a more significant impact on the structural allocation of credit assets in smaller, less well-capitalized, and less liquid local commercial banks compared to their larger, better-capitalized, and more liquid counterparts. Lastly, the effect of the epidemic on the proactive allocation behavior of credit assets by banks is more pronounced in the less economically developed central and western regions of China than in the more economically advanced eastern regions.