LAUSR

ABSTRACT Herein, factors affecting domestic bank loans to the private sector are determined within the context of ten developing countries. The relationship between bank loans to the private sector and the gross domestic product (GDP), interest rates, exchange rates, and terrorist incidents is investigated using the autoregressive distributed lag bounds test and cointegration regression models. According to the results obtained from the models developed by applying annual data from 1970–2018, a positive relationship between domestic bank loans to the private sector, which is the endogenous variable, and the GDP, and a negative relationship with interest rates, terrorist incidents, and exchange rates are observed. Particularly in countries where terrorism is intense, investors giving up or postponing investments owing to the deterioration of the investment climate decreases loans to the private sector. Accordingly, terrorism should be considered and managed as an operational risk factor in the banking sector. We also find empirical evidence that capital control practices in some countries decrease bank loans to the private sector.