Banks rely on soft information to allocate credit, making managerial assignment and the delegation of decision-making authority central organisational choices. In socially divided environments, these choices involve a trade-off between improving information acquisition through locally connected managers and limiting the risk of biased lending through favouritism. We study how banks adjust internally as conflict intensifies, using the outbreak of the 2020 Ethiopian civil war as a natural experiment. We show that conflict-exposed banks increasingly appoint managers who share the ethnicity of local customers while tightening headquarters’ oversight by reducing lending autonomy and relying on experienced insiders. Our results suggest that these organisational adjustments allow banks to sustain lending activity with little deterioration in loan performance.

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