Credit to government and banking sector performance

The impact of credit to government on three aspects of banking sector performance - its deepening over time, profitability, and efficiency - is examined for 142 countries. Country regressions suggest a sizeable negative effect of credit to government on bank deepening in developing countries, but no impact in advanced economies. Bank regressions find that credit to government raises the profitability but reduces the efficiency of banks in developing countries; in advanced economies, there appears to be no impact on profitability but a positive one on efficiency.