Kim, Dongwoo
A icle
Banks' po olio simila i y du ing he COVID-19 pandemic
Global Business & Finance Re iew (GBFR)
P o ided in Coope a ion wi h:
People & Global Business Associa ion (P&GBA), Seoul
Sugges ed Ci a ion: Kim, Dongwoo (2024) : Banks' po olio simila i y du ing he COVID-19 pandemic,
Global Business & Finance Re iew (GBFR), ISSN 2384-1648, People & Global Business Associa ion
(P&GBA), Seoul, Vol. 29, Iss. 5, pp. 14-18,
h ps://doi.o g/10.17549/gb .2024.29.5.14
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I. In oduc ion
Unexpec ed c ises such as he COVID-19 pandemic
shock inancial ma ke s, heigh ening sys em ins abili y.
Unde hese ci cums ances, he homogenei y o banks'
po olio is likely o u he deepen he ma ke
ins abili y (Wagne , 2010). Especially, la ge banks
end o ha e mo e simila po olios o e ime (F icke,
2016). Wi h se e al la ge banks domina ing he
ma ke in mos coun ies, his deepening in e bank
po olio synch oniza ion is likely o se e as a
Recei ed: Jan. 11, 2024; Re ised: Feb. 6, 2024; Accep ed: Feb. 12, 2024
† Co esponding au ho : Dongwoo Kim
E-mail: [email protected]
po en ial sou ce o ins abili y in he banking ma ke .
In addi ion, in case ha c ises such as he COVID-19
inciden a e u he added o his end, i could be
a double isk ac o o he ma ke . The deg ee o
in e bank po olio homogenei y can be analyzed as
po olio simila i y, which means how simila he
asse con igu a ions ha banks alloca e by ype a e
(F icke, 2016). As po olio homogenei y can occu
in a ious o ms, including c edi a ing, indus y,
and geog aphical egion, po olio simila i y needs
o be analyzed conside ing such c i e ia.
This s udy aims o iden i y how he COVID-19
pandemic has a ec ed banks' po olio simila i ies
in e ms o c edi a ing, indus y, and egion.
Fu he mo e, we y o cla i y he ela ionship be ween
GLOBAL BUSINESS & FINANCE REVIEW, Volume. 29 Issue. 5 (JUNE 2024), 14-18
pISSN 1088-6931 / eISSN 2384-1648∣H ps://doi.o g/10.17549/gb .2024.29.5.14
ⓒ 2024 People and Global Business Associa ion
GLOBAL BUSINESS & FINANCE REVIEW
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o inancial sus ainabili y and people-cen e ed global business1)
Banks' Po olio Simila i y Du ing he COVID-19 Pandemic
Dongwoo Kim†
B
aekseok Uni e si y, Cheonan, Ko ea
A
B S T R A C T
Pu pose: This s udy ies o iden i y he impac o he COVID-19 pandemic on he simila i y o banks' loan po olios.
Design/me hodology/app oach: Using he en i e i m-le el bank loan da a om 2009 o 2020 in he Ko ean ma ke ,
his s udy analyzes he cosine simila i y in e ms o c edi a ing, indus y, and egion be ween banks.
Findings: The s udy disco e ed ha in e bank po olio simila i y has escala ed o e ime, wi h he simila i y no a-
bly in ensi ying du ing he COVID-19 pandemic. Addi ionally, i was ound ha la ge banks exhibi g ea e sim-
ila i ies, a end ha has become inc easingly p onounced du ing he pandemic pe iod.
Resea ch limi a ions/implica ions: This s udy p o ides empi ical e idence o he synch oniza ion in lending beha -
io s among majo Sou h Ko ean banks du ing he COVID-19 pandemic. I posi s ha while he synch onici y o
banks' lending pa e ns du ing ypical inancial c ises is gene ally accep ed, u he esea ch in inancial ma ke s
o o he coun ies is necessa y o subs an ia e his claim uni e sally.
O iginali y/ alue: The e o e, he ole o inancial au ho i ies o alle ia e deepening in e bank po olio synch oniza-
ion igge ed by he COVID-19 pandemic and he esul ing escala ion o inancial ma ke ins abili y is emphasized.
Keywo ds: Po olio simila i y, COVID-19, Co po a e loan, C edi a ing, indus y, Region
ⓒ
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Non-Comme cial License (h ps://c ea i ecommons.o g/licenses/by-nc/4.0/) which pe mi s un es ic ed non-comme cial use, dis ibu ion
,
and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed.
Dongwoo Kim
15
he banks' po olio simila i y and hei asse size
and ind ou how he COVID-19 pandemic is in e ac ing
wi h he ela ionship. The esul s o his s udy ha e
con i med ha he in e bank po olio simila i y has
inc eased o e ime and ha he simila i y has been
pa icula ly in ensi ied du ing he COVID-19 pandemic.
I is also ound ha he la ge banks end o ha e
highe simila i ies and such end is ge ing s onge
du ing he pandemic.
This s udy has a heo e ical con ibu ion in ha ,
o he bes o ou knowledge, i is he i s o analyze
he impac o he COVID-19 pandemic on he
simila i y o he banks' po olios. P ac ically, he
esul s o his s udy emphasize he impo ance o
he ole o coo dina o o inancial au ho i ies o
p o ide loans o companies which belong o
ma ginalized indus ies and p o incial egions and
ha e in e io c edi a ings, and hus o alle ia e he
imbalance and disc imina ion in he loan ma ke .
II. Da a and Me hodology
The da a used in his s udy is co po a e loan
in o ma ion p o ided by Ko ea C edi In o ma ion
Se ices (www.kc edi .o .k ), which pe iodically
accumula es loan ou s anding da a om all companies
using bank loans in Ko ea. Using his loan da a,
we c ea ed annual loan po olios o each indi idual
bank by asse ype om 2009 o 2020. As banks
a e mos likely o manage hei loan po olios based
on he c edi a ing, indus y and geog aphical egion,
in his s udy, he ypes o asse s we e also analyzed
by such c i e ia.
Fo he c edi a ing, 22-le el a ing sys em was
applied, anging om he lowes , D, o he highes ,
AAA and NR as no a ed and being addi ional classes
wi h posi i e and nega i e signs om AA o CCC
g ades (e.g., AA+, AA, AA-). Fo he indus y, using
KSIC (Ko ea S anda d Indus ial Classi ica ion)
di ision-le el codes which deno ed by a single
alphabe ic le e and wo digi s, we ended up wi h
78 di e en asse s including NA as no a ailable.
The geog aphical egions we e di ided in o i e
classes such as capi al a ea, me opoli an ci y,
p o incial a ea, o e seas, and NA as no a ailable.
In o ma ion on each company's c edi a ing, indus y
and geog aphical egion was p o ided by NICE
In o ma ion Se ice (www.nicein o.co.k ), he c edi
a ing agency.
In his s udy, a cosine simila i y is applied o
measu e how simila he po olio composi ions o
wo banks a e (Sal on & McGill, 1987), which is
de ined as
Simila i y (i,j) =
(1)
whe e
w
(i,k)
and
w
(j,k)
a e bank i's and j's ec o s
o loan po olio weigh s in asse ype k a yea -end ,
espec i ely. While he esul ing simila i y concep ually
anges om -1 meaning exac ly opposi e, o 1 meaning
exac ly he same, in his s udy, i anges om 0
o 1 due o he non-nega i e alues o
w
(i,k)
and
w
(j,k)
.
Rep esen ing he numbe o le els o po olio
o each ype o asse s, K is 22, 78, and 5 o c edi
a ing, indus y, and egion, espec i ely. The cosine
simila i ies in hese asse ypes a e used as he
dependen a iables SIMILARITY. The independen
a iable BANK SIZE, ep esen ing he combined
asse size o a pai o banks o which simila i y
is compa ed, is calcula ed by he na u al loga i hm
o he p oduc o each bank's o al co po a e loan
asse a he end o each yea (Gi a di, Hanley,
Nikolo a, Pelizzon, & She man, 2018, Wang, W., &
Pa k, H. (2021)). We hen se he mode a ing a iable
COVID-19, a dummy a iable o 1 o 2020 and
0 o he es o he yea . Con ol a iables include
annual unemploymen a e, end-o -yea KRW/USD
exchange a es, and a e age in e es a e on co po a e
loans. A hie a chical eg ession analysis (Ba on &
Kenny, 1986) wi h he abo e a iables was conduc ed
o de e mine he e ec o COVID-19 pandemic on
he simila i y o banks' po olio composi ions,
GLOBAL BUSINESS & FINANCE REVIEW, Volume. 29 Issue. 5 (JUNE 2024), 14-18
16
ollowed by ANNOVA in o de o de e mine whe he
he di e ences in explana o y powe be ween each
hie a chical model a e s a is ically signi ican .
III. Resul s
Table 1 shows he esul s o hie a chical eg ession
analyses. The dependen a iables in models I, II
and III a e po olio simila i ies on c edi a ing,
indus y and egion, espec i ely. Fi s , o all h ee
asse ypes, he BANK SIZE a iable shows a posi i e
ela ionship wi h he dependen a iable SIMILARITY,
meaning ha he la ge he size o a pai o banks,
he highe he po olio simila i y be ween hem. In
o he wo ds, la ge banks end o ha e mo e simila
co po a e loan po olios by c edi a ing, indus y,
and egion. Nex , he COVID-19 a iable is also
ound o ha e a posi i e ela ionship wi h he
SIMILARITY a iable in all he h ee models,
meaning ha he po olios o a pai o banks ha e
become mo e simila since he COVID-19 pandemic
occu ed han be o e. Finally, o each model, he
h ee-s age submodels (i.e., I-3, II-3, and III-3)
demons a e he in e ac ion e ec s o he BANK SIZE
and COVID-19 a iables on he dependen a iable
SIMILARITY, all o which a e posi i e. This means
ha he impac o banks' size on po olio simila i y
is u he s eng hened du ing he COVID-19 pandemic
in all h ee asse ypes. In o he wo ds, he la ge
he size o banks, he g ea e he simila i y o po olios
by c edi a ing, is becoming s onge du ing he
pandemic and his is he same o simila i ies by
indus y o egion.
To compa e yea - o-yea simila i y ends in mo e
de ail, smoo h densi y dis ibu ions a e d awn using
he Ke nel densi y es ima ion echnique. Figu e 1 shows
Independen /
Con ol a iables
Dependen a iable: SIMILARITY in …
C edi a ing Sec o Region
I-1 I-2 I-3 II-1 II-2 II-3 III-1 III-2 III-3
(In e cep ) -1.04e-15 -2.82e-15 -0.001 -1.53e-15 -4.75e-15 -0.001 1.82e-15 3.79e-15 0.002
UNEMPLOYMENT -0.004*-0.027*-0.027*-0.041*** -0.083*** -0.083*** 0.047*** 0.073*** 0.073***
KRW/USD -0.026*** -0.018*-0.018*-0.007 0.008 0.008 -0.008 -0.017 -0.017
LENDING RATE -0.074*** -0.070** -0.070*** -0.024** 0.032*** 0.032*** -0.023*-0.027** -0.027**
BANK SIZE 0.513*** 0.513*** 0.513*** 0.501*** 0.500*** 0.500*** 0.070*** 0.071*** 0.070***
COVID-19 0.032*0.028*0.058*** 0.055*** 0.035*-0.029
COVID 19*BANK SIZE 0.031*** 0.017*0.046***
d 12285 12284 12283 12285 12284 12283 12285 12284 12283
R20.2701 0.2705 0.2714 0.2531 0.2542 0.2544 0.0090 0.0094 0.0113
F-s a is ics 1137*** 910.8*** 762.5*** 837.2*** 698.5*** 27.78*** 23.2*** 23.48***
∆F-s a is ics 3.887*15.37*** 12.75*** 4.263*4.775*24.65***
No e: ***, ** and * indica e s a is ical signi icance a he 0.1%, 1% and 5% le els, espec i ely.
Table 1. β coe icien s o he hie a chical linea eg ession models
Figu e 1. Ke nel densi y dis ibu ion o c edi a ing
simila i
y
Dongwoo Kim
17
he cosine simila i y dis ibu ions o he po olio
by c edi a ing as he selec ed yea s (i.e., 2009, 2013,
2017, and 2020). I can be seen ha 2020 du ing
he COVID-19 pandemic pe iod shows a skewed
dis ibu ion u he o he le han o he yea s. This
means ha he e a e mo e cases in which he po olio
simila i y be ween banks in c edi a ing has inc eased
du ing he pandemic pe iod. This end is also
obse ed in Figu es 2 and 3, showing simila i ies
by indus y and egion, espec i ely. In Figu e 2,
2020 shows a lowe densi y in a ound 0.5 o lowe
o cosine simila i y, while a highe densi y in he
abo e han o he yea s, ep esen ing banks' po olio
simila i y by indus y has inc eased du ing he
pandemic pe iod. Figu e 3 also shows ha 2020 is
pa icula ly dense wi h simila i y nea o 1 compa ed
o o he yea s.
Figu e 4 shows he a e age po olio simila i y
end o all banks o each asse ype, ep esen ing
ha he a e age simila i y has inc eased especially
in 2020 compa ed o he p e ious yea s. While F icke
(2016), which analyzed da a om Japanese banks
om 1996 o 2013, showed ha he po olio simila i y
be ween banks has dec eased o e ime, on he o he
hand, he esul s o his s udy indica e ha he
simila i y has been inc easing in Ko ean banks om
2009 o 2020.
IV. Conclusion
This s udy in es iga es how he COVID-19
pandemic a ec s he simila i y o banks' po olios,
e ealing an inc easing end owa ds homogenei y,
especially among la ge banks, which he pandemic
has u he in ensi ied. This con e gence in po olio
managemen s a egies
—
no only in c edi a ing bu
also ac oss indus ies and egions
—
exace ba es
inancial ma ke ins abili y and na ows unding
oppo uni ies o companies wi h poo e c edi a ings
o in less p e e ed sec o s. Inco po a ing he
pe spec i e ha po olio in es men se es as a ool
o company isk managemen , i becomes c ucial
o banks o di e si y hei po olio s a egies o
dis inguish hemsel es om compe i o s. This
di e en ia ion s a egy is essen ial o mi iga e he isks
associa ed wi h in e bank po olio synch oniza ion
and o suppo a mo e s able inancial ma ke
en i onmen . The ole o inancial au ho i ies in
Figu e 4. Changes in simila i y o e yea
Figu e 2. Ke nel densi y dis ibu ion o indus ial
simila i y
Figu e 3. Ke nel densi y dis ibu ion o egional
simila i y
GLOBAL BUSINESS & FINANCE REVIEW, Volume. 29 Issue. 5 (JUNE 2024), 14-18
18
alle ia ing he compounded e ec s o COVID-19
on in e bank po olio simila i y and inancial ma ke
ins abili y canno be o e s a ed. Empi ical e idence
om majo Sou h Ko ean banks du ing he pandemic
unde sco es he need o u he esea ch in o he
coun ies' inancial ma ke s o gene alize hese indings.
Addi ionally, While his s udy did no analyze he
di e ence in synch oniza ion phenomena acco ding
o bank size, i is expec ed ha he e would be
a ia ions in he synch oniza ion e ec s due o
di e ences in cus ome g oups and loan p oduc s
be ween la ge and small banks. This opic is deemed
wo hy o u he esea ch and should be conside ed
a aluable u u e esea ch agenda.
Funding S a emen
This pape was suppo ed by he Academic Resea ch
Funding o Baekseok Uni e si y in 2024.
Con lic s o In e es
The au ho s decla e ha he e a e no con lic s
o in e es ega ding he publica ion o his pape .
Au ho Con ibu ions
This pape was solely au ho ed by Dongwoo Kim
Re e ences
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