Abstract
Abstract
This study examines how banks in Mongolia respond to industry-level financial distress—specifically, whether banks with dominant exposure to a distressed sector absorb the shock internally by maintaining or increasing their lending, or instead transmit it to the broader economy. We integrate bank-industry-time panel dataset from the Bank of Mongolia, covering 12 banks and 17 economic sectors from 2017 to 2024. Industry distress is identified using a dummy variable based on spikes in the non-performing loan (NPL) ratio to capture the distress periods, while bank exposure is captured through each bank’s market share within a given sector. Fixed-effects models are utilized to analyze how lending responses vary depending on bank-sector relationships during times of distress. Our novel results suggest banks’ lending decisions during financial stress depend on market share, exposure, industry health, and supply chain position in a relatively strong credit concentration market. Dominant or highly exposed banks continue lending to preserve stability, while financial efficiency and sectoral linkages shape credit allocation. These findings reveal how shocks transmit through credit channels in emerging markets, offering insights for financial stability and policy design.
Jel Code:
E44, E51, G21