Exploring risks in syndicated loan networks: Evidence from real estate investment trusts

This study explores credit and systemic risks in the interconnected market for syndicated loans to Japan's real estate investment trusts (J-REITs). Although earlier studies have investigated various aspects of the syndicated loan market, few have considered the financial network and risk resilience perspectives. To bridge this gap, I conduct network analysis using credit exposures or Euclidean distance between loans and perform a macrostress test by extending Furfine's algorithm. The analysis results indicate that Japanese major banks, large regional banks, and J-REITs play a key role in terms of degree centrality. In addition, the test results show that no J-REIT's default causes default contagion of the lending institutions based on syndicated loans outstanding at the end of 2021. Overall, this study provides effective methodologies to evaluate the interconnectedness between loans as well as risk contagion from borrowers to lenders in a two-mode network for syndicated loans.