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<p>Past scientific efforts have paid special attention to exploring the potential exposures of the banking system to increasing geopolitical risks (GPR); however, the non-linear association between GPR and bank lending remains largely underexplored. The current study aims to examine this association using the newly proposed GPR index and a bank-level dataset covering the period 2006–2024 in Vietnam, an important emerging economy in Southeast Asia. We document a robust U-shaped nexus between GPR and bank lending. Accordingly, rising GPR is initially associated with a contraction in lending, followed by a rebound once these risks surpass a certain threshold (around 0.496 in standardized units). This pattern confirms and deepens known effects: the initial contraction is in line with wait-and-see inertia and risk-aversion behavior, while the subsequent lending expansion reflects the flight-to-safety phenomenon. Our heterogeneity analyses also reveal that the U-shaped dynamic is conditional on bank funding, amplified for banks receiving higher deposit inflows, and is particularly evident among small banks. Furthermore, sub-index analyses indicate that this dynamic is relatively more pronounced for geopolitical threats than for materialized acts. Overall, our findings highlight the importance of a cautious approach to credit risk management against the backdrop of heightened geopolitical uncertainty, especially in emerging markets like Vietnam, and provide correlational insights for future macroprudential studies.</p>

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Are geopolitical risks always harmful? New insights from their non-linear dynamics with bank lending in an emerging economy

  • 期刊论文

  • 发表日期：

    2026年7月21日

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  • Chi Huu Lu

摘要

Past scientific efforts have paid special attention to exploring the potential exposures of the banking system to increasing geopolitical risks (GPR); however, the non-linear association between GPR and bank lending remains largely underexplored. The current study aims to examine this association using the newly proposed GPR index and a bank-level dataset covering the period 2006–2024 in Vietnam, an important emerging economy in Southeast Asia. We document a robust U-shaped nexus between GPR and bank lending. Accordingly, rising GPR is initially associated with a contraction in lending, followed by a rebound once these risks surpass a certain threshold (around 0.496 in standardized units). This pattern confirms and deepens known effects: the initial contraction is in line with wait-and-see inertia and risk-aversion behavior, while the subsequent lending expansion reflects the flight-to-safety phenomenon. Our heterogeneity analyses also reveal that the U-shaped dynamic is conditional on bank funding, amplified for banks receiving higher deposit inflows, and is particularly evident among small banks. Furthermore, sub-index analyses indicate that this dynamic is relatively more pronounced for geopolitical threats than for materialized acts. Overall, our findings highlight the importance of a cautious approach to credit risk management against the backdrop of heightened geopolitical uncertainty, especially in emerging markets like Vietnam, and provide correlational insights for future macroprudential studies.