The Role of Banks' Technology Adoption in Credit Markets during the Pandemic

40 Pages Posted: 6 Jul 2021

Date Written: April 29, 2021

Abstract

This paper shows that higher information technology (IT) adoption by banks led to a larger increase in corporate lending in the months following the COVID-19 outbreak in Italy. Examining banks with heterogeneous degrees of IT adoption, we investigate the dynamics of credit and its allocation across firms using a new database with detailed information on bank IT expenditures and propensity to innovate matched with bank-firm level data on credit growth before and during the pandemic. Using a difference-in-differences identification strategy, we find that banks with higher intensity of IT adoption increased their credit more than others during the pandemic. The increase was concentrated in term loans extended to smaller and financially sounder companies; the effect was stronger in the initial phase of tighter restrictions to firm activity and individual mobility, and more significant for undertakings active in the sectors most affected by the shock. We provide evidence that these results are driven by both bank's ability to offer credit entirely on-line and bank's use of digital technologies for creditworthiness assessment. We find that physical proximity between borrowers and lenders remained important for credit provision during the pandemic, but only when combined with high level of IT adoption.

Keywords: bank credit, information technology, firms, COVID-19 pandemic

JEL Classification: G21, G22, G23, G24

Suggested Citation

Branzoli, Nicola and Rainone, Edoardo and Supino, Ilaria, The Role of Banks' Technology Adoption in Credit Markets during the Pandemic (April 29, 2021). Available at SSRN: https://ssrn.com/abstract=3878254 or http://dx.doi.org/10.2139/ssrn.3878254

Nicola Branzoli

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Edoardo Rainone (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Ilaria Supino

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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