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    Bank of Finland, Rauhankatu 19 B, Helsinki 

Andriy Tsapin (National Bank of Ukraine): Shock Contagion, Asset Quality and Lending Behaviour

Co-authors: Tho Pham (Swansea University) and Oleksandr Talavera (Swansea University) 

We use the geopolitical conflict in eastern Ukraine as a negative shock to bank assets and examine the shock’s impact on the banking sector. We find banks were more severely affected by the conflict if they had more loans outstanding in the conflict areas before the shock. These banks, consequently, are more likely to experience an increase in troubled assets and a reduction in credit supply. Further analysis offers evidence of the “flight to headquarters” effect in credit allocation wherein more affected banks cut lending by a greater amount in markets located farther from headquarters.


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