13 Pages Posted: 28 Jun 2013 Last revised: 2 May 2014
Date Written: June 27, 2013
This study examines the reaction of commercial bank sector to loan (written by all commercial banks) delinquency rate shock. Using quarterly data from 1985Q1 to 2012Q4, the results show that returns on the commercial bank sector significantly drop immediately following the spike in loan delinquency rate. Loan delinquency rate Granger-causes the negative reaction of returns on the commercial bank sector. Loan delinquency rate contributes about 3.46%, 6.42%, 8.10% and 9.00% of the return forecast error at the two-, four-, six- and eight-quarter horizons, respectively.
Keywords: loan delinquency, commercial banks, financial sector performance
JEL Classification: G14, G20, G21
Suggested Citation: Suggested Citation