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Credit Losses in Australasian Banking

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  • KURT HESS
  • ARTHUR GRIMES
  • MARK HOLMES

Abstract

We analyse the determinants of bank credit losses in Australasia. Despite sizeable credit losses over the past two decades, ours is the first systematic study to do so. Analysis is based on a comprehensive dataset retrieved from original financial reports of 32 Australasian banks (1980-2005). Credit losses rise when the macro economy is weak. Asset markets, particularly the equity market, are also important. Larger banks provide more for credit losses while banks with high cost-income-ratios show greater loan loss provisions. Strong loan growth translates into significantly higher credit losses with a lag of 2-4 years. Finally, the results show strong evidence of income smoothing activities by banks. Copyright © 2009 The Economic Society of Australia.

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Bibliographic Info

Article provided by The Economic Society of Australia in its journal Economic Record.

Volume (Year): 85 (2009)
Issue (Month): 270 (09)
Pages: 331-343

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Handle: RePEc:bla:ecorec:v:85:y:2009:i:270:p:331-343

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References

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  1. Jacob A. Bikker & Haixia Hu, 2002. "Cyclical patterns in profits, provisioning and lending of banks and procyclicality of the new Basel capital requirements," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 55(221), pages 143-175.
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  3. Ahmed, Anwer S. & Takeda, Carolyn & Thomas, Shawn, 1999. "Bank loan loss provisions: a reexamination of capital management, earnings management and signaling effects," Journal of Accounting and Economics, Elsevier, vol. 28(1), pages 1-25, November.
  4. Allen N. Berger & Robert DeYoung, 1995. "Problem Loans and Cost Efficiency in Commercial Banks," Center for Financial Institutions Working Papers 96-01, Wharton School Center for Financial Institutions, University of Pennsylvania.
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  8. Bikker, J.A. & Metzemakers, P.A.J., 2005. "Bank provisioning behaviour and procyclicality," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(2), pages 141-157, April.
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  11. Vicente Salas & Jesús Saurina, 2002. "Credit Risk in Two Institutional Regimes: Spanish Commercial and Savings Banks," Journal of Financial Services Research, Springer, vol. 22(3), pages 203-224, December.
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Cited by:
  1. Kurt Hess & Arthur Grimes, 2009. "Commercial Bank Loan Loss Recoveries," Working Papers in Economics 09/09, University of Waikato, Department of Economics.
  2. Foos, Daniel & Norden, Lars & Weber, Martin, 2010. "Loan growth and riskiness of banks," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 2929-2940, December.
  3. Pais, Amelia & Stork, Philip A., 2011. "Contagion risk in the Australian banking and property sectors," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 681-697, March.

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