Exploring Hidden Risk in Syndicated Loan Networks: Evidence From Real Estate Investment Trusts

Abstract

This study aims to assess interconnectedness and risk in the market for syndicated loans to Japan's real estate investment trusts (J-REITs) from fiscal year (FY) 2013 to FY 2020 and the first half of FY 2021. Network analysis indicates that Japanese major banks, large regional banks, and J-REITs have a high degree centrality. Subsequently, the stress test investigates the resilience on a shock of financial institutions under in a syndicated loan market. We found that no default contagion via a syndicated loan market is expected based on syndicated loans outstanding at the end of 2021. Finally, this study contributes to the literature on interconnectedness, credit risk, and systemic risk in J-REIT's syndicated loan network.

Keywords: Syndicated loan; REIT; interconnectedness; credit risk; systemic risk; stress test

JEL Classification: G32; G10; D85; L14