Loan Loss Provisions and Lending Behavior of Banks: Do Information Sharing and Borrower Legal Rights Matter?
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8 mars 2016
- handle: 10670/1.xh1e2l
- hal: hal-01284978
- doi: 10.2139/ssrn.2131582
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info:eu-repo/semantics/altIdentifier/doi/10.2139/ssrn.2131582
info:eu-repo/semantics/OpenAccess
Mots-clés
Loan loss provisions loan growth information sharing borrower legal rights G - Financial Economics/G.G1 - General Financial Markets/G.G1.G10 - General G - Financial Economics/G.G1 - General Financial Markets/G.G1.G14 - Information and Market Efficiency • Event Studies • Insider Trading G - Financial Economics/G.G2 - Financial Institutions and Services/G.G2.G21 - Banks • Depository Institutions • Micro Finance Institutions • Mortgages G - Financial Economics/G.G2 - Financial Institutions and Services/G.G2.G28 - Government Policy and RegulationSujets proches
Financial intermediaries Lending institutions Funds Funding Borrowing Finance, commerce, confiscations, etcCiter ce document
Wahyoe Soedarmono et al., « Loan Loss Provisions and Lending Behavior of Banks: Do Information Sharing and Borrower Legal Rights Matter? », HAL-SHS : économie et finance, ID : 10.2139/ssrn.2131582
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Résumé
In this paper, we examine the role of information sharing and borrower legal rights in affecting the procyclical effect of bank loan loss provisions. Based on a sample of Asian banks, our empirical results highlight that higher non-discretionary provisions reduce loan growth and hence, non-discretionary provisions are procyclical. A closer investigation suggests that better information sharing through public credit registries managed by central banks, but not private credit bureaus managed by the private sector, might substitute the role of a dynamic provisioning system in mitigating the procyclicality of non-discretionary provisions. We also document that higher discretionary provisions in countries with stronger legal rights of borrowers may temper the procyclical effect of non-discretionary provisions. However, these findings only hold for small banks. This suggests that the implementation of a dynamic provisioning system to mitigate the procyclicality of non-discretionary provisions is more crucial for large banks, because such procyclicality cannot be offset by strengthening credit market environments through better information sharing and legal rights of borrowers.