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Herding behaviour in the A ustralian loan market and its impact on bank loan quality
Author(s) -
Tran Vuong Thao,
Nguyen Hoa,
Lin Chien Ting
Publication year - 2017
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12183
Subject(s) - herding , loan , business , financial system , quality (philosophy) , herd behavior , financial crisis , monetary economics , economics , finance , geography , philosophy , epistemology , forestry , macroeconomics
We examine the effect of herding behaviour on the credit quality of bank loans in A ustralia. We find that bank herding varies with different types of loans. It tends to be more prevalent in owner‐occupied housing loans and credit cards than other types of loans. During the global financial crisis period, herding in owner‐occupied housing loans was most pronounced due to the flight‐to‐quality phenomenon in the housing sector. Furthermore, we find that the big four banks tend to herd more than smaller and regional banks. Bank herding behaviour is countercyclical, as it is negatively related to real GDP growth and the cost of funding but is positively related to market risk. Regulatory capital requirements may also encourage herding as banks are required to hold less risk‐weighted capital for residential loans. Most importantly, bank herding is related to higher impaired assets and therefore lower loan quality. Our findings may have implications for policymakers and bank regulators.