COVID‑19 pandemic risk and probability of loan default: evidence from marketplace lending market

Article

Nigmonov, Asror and Shams, Syed. 2021. "COVID‑19 pandemic risk and probability of loan default: evidence from marketplace lending market." Financial Innovation. 7 (1), pp. 1-28. https://doi.org/10.1186/s40854-021-00300-x
Article Title

COVID‑19 pandemic risk and probability of loan default: evidence from marketplace lending market

ERA Journal ID212508
Article CategoryArticle
AuthorsNigmonov, Asror (Author) and Shams, Syed (Author)
Journal TitleFinancial Innovation
Journal Citation7 (1), pp. 1-28
Article Number83
Number of Pages28
Year2021
PublisherSpringerOpen
Place of PublicationGermany
ISSN2199-4730
Digital Object Identifier (DOI)https://doi.org/10.1186/s40854-021-00300-x
Web Address (URL)https://jfin-swufe.springeropen.com/articles/10.1186/s40854-021-00300-x
Abstract

As the COVID-19 pandemic adversely affects the financial markets, a better understanding of the lending dynamics of a successful marketplace is necessary under the conditions of financial distress. Using the loan book database of Mintos (Latvia) and employing logit regression method, we provide evidence of the pandemic-induced exposure to default risk in the marketplace lending market. Our analysis indicates that the probability of default increases from 0.056 in the pre-pandemic period to 0.079 in the post-pandemic period. COVID-19 pandemic has a significant impact on default risk during May and June of 2020. We also find that the magnitude of the impact of COVID-19 risk is higher for borrowers with lower credit ratings and in countries with low levels of FinTech adoption. Our main findings are robust to sample selection bias allowing for a better understanding of and quantifying risks related to FinTech loans during the pandemic and periods of overall economic distress.

KeywordsPeer-to-peer lending, COVID-19, Coronavirus, Default risk, Marketplace lending, Pandemic, FinTech, Shadow banking
ANZSRC Field of Research 2020350299. Banking, finance and investment not elsewhere classified
Byline AffiliationsUniversity of New South Wales
University of Southern Queensland
Institution of OriginUniversity of Southern Queensland
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