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[Vol.21 No.2] Bank Loan Portfolio and Bank Risk

Group :
Economic Research Institute (+82-2-759-6873) 2015.06.30 2833

Authors : Sang Wook Lee(Seoul National University of Science and Technology), Sung Wook Cho(the Bank of Korea)




This paper examines the relationship between the bank loan concentration and bank risk by using 75 industry bank loan portfolio data. We defined the industry bank loan concentration proxy using HHI(Hirshimann-Herfindahl Index) based on the economic market concentration concept as well as RD(Relative Distance) considering the loan portfolio similarity among banks. We used the Bank-Z score, developed by Boyd and Runkle(1993), as the bank risk proxy.
Empirical analyses in this paper show that bank loan portfolio concentration might increase bank insolvency risks, possibly by raising earning volatility.