Given the heavy reliance on bank lending as the main source of financing in most Asian
economies, banks could potentially play a pivotal role in monetary policy transmission.
However, we find that Asia's bank lending channel or, more broadly, credit channel of
domestic monetary policy is not very strong at the aggregate level. Using bank-level data
for nine Asian economies during 2000-2013, we show that heterogeneity of bank
characteristics (e.g., ownership type, financial position), degree of foreign bank
penetration of the domestic banking sector, and global financial conditions all have a
bearing on the response of domestic credit to changes in domestic monetary policy, and
may account for the apparently weak credit channel at aggregate level.