Advanced Search
MyIDEAS: Login to save this article or follow this journal

The effects of loan portfolio concentration on Brazilian banks' return and risk

Contents:

Author Info

  • Tabak, Benjamin M.
  • Fazio, Dimas M.
  • Cajueiro, Daniel O.

Abstract

This paper tests whether diversification of the credit portfolio at the bank level leads to better performance and lower risk. We employ a new high frequency (monthly) panel data for the Brazilian banking system with information at the bank level for loans by economic sector. We find that loan portfolio concentration increases returns and also reduces default risk; the impact of concentration on bank's return is decreasing on bank's risk; there are significant size effects; foreign and state-owned banks seem to be less affected by the degree of diversification. An important additional finding is that there is an increasing concentration trend after the breakout of the recent international financial crisis, specially after the failure of Lehman Brothers.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/pii/S0378426611001452
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 35 (2011)
Issue (Month): 11 (November)
Pages: 3065-3076

as in new window
Handle: RePEc:eee:jbfina:v:35:y:2011:i:11:p:3065-3076

Contact details of provider:
Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Loan portfolio composition Focus Diversification Bank return Bank risk Emerging markets;

Other versions of this item:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Steve Bond, 2002. "Dynamic panel data models: a guide to microdata methods and practice," CeMMAP working papers, Centre for Microdata Methods and Practice, Institute for Fiscal Studies CWP09/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  2. Staub, Roberta B. & da Silva e Souza, Geraldo & Tabak, Benjamin M., 2010. "Evolution of bank efficiency in Brazil: A DEA approach," European Journal of Operational Research, Elsevier, Elsevier, vol. 202(1), pages 204-213, April.
  3. Elsas, Ralf & Hackethal, Andreas & Holzhäuser, Markus, 2010. "The anatomy of bank diversification," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(6), pages 1274-1287, June.
  4. Hasan, Iftekhar & Marton, Katherin, 2003. "Development and efficiency of the banking sector in a transitional economy: Hungarian experience," Journal of Banking & Finance, Elsevier, Elsevier, vol. 27(12), pages 2249-2271, December.
  5. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  6. Berger, Allen N. & Hasan, Iftekhar & Zhou, Mingming, 2009. "Bank ownership and efficiency in China: What will happen in the world's largest nation?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(1), pages 113-130, January.
  7. Bonin, John P. & Hasan, Iftekhar & Wachtel, Paul, 2005. "Bank performance, efficiency and ownership in transition countries," Journal of Banking & Finance, Elsevier, Elsevier, vol. 29(1), pages 31-53, January.
  8. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, Elsevier, vol. 126(1), pages 25-51, May.
  9. Patricia Tecles & Benjamin M. Tabak, 2010. "Determinants of Bank Efficiency: the case of Brazil," Working Papers Series, Central Bank of Brazil, Research Department 210, Central Bank of Brazil, Research Department.
  10. Denis, David J & Denis, Diane K & Sarin, Atulya, 1997. " Agency Problems, Equity Ownership, and Corporate Diversification," Journal of Finance, American Finance Association, American Finance Association, vol. 52(1), pages 135-60, March.
  11. Kamp, Andreas & Pfingsten, Andreas & Porath, Daniel, 2005. "Do banks diversify loan portfolios? A tentative answer based on individual bank loan portfolios," Discussion Paper Series 2: Banking and Financial Studies 2005,03, Deutsche Bundesbank, Research Centre.
  12. Iftekhar Hasan & Anthony Saunders & Viral V. Acharya, 2002. "Should banks be diversified? Evidence from individual bank loan portfolios," BIS Working Papers 118, Bank for International Settlements.
  13. Benjamin Miranda Tabak & Solange Maria Guerra & Eduardo José Araújo Lima & Eui Jung Chang, 2007. "The Stability-Concentration Relationship in the Brazilian Banking System," Working Papers Series, Central Bank of Brazil, Research Department 145, Central Bank of Brazil, Research Department.
  14. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, StataCorp LP, vol. 9(1), pages 86-136, March.
  15. Berger, Allen N. & Hasan, Iftekhar & Zhou, Mingming, 2010. "The effects of focus versus diversification on bank performance: Evidence from Chinese banks," Journal of Banking & Finance, Elsevier, Elsevier, vol. 34(7), pages 1417-1435, July.
  16. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  17. Rossi, Stefania P.S. & Schwaiger, Markus S. & Winkler, Gerhard, 2009. "How loan portfolio diversification affects risk, efficiency and capitalization: A managerial behavior model for Austrian banks," Journal of Banking & Finance, Elsevier, Elsevier, vol. 33(12), pages 2218-2226, December.
  18. Stiroh, Kevin J. & Rumble, Adrienne, 2006. "The dark side of diversification: The case of US financial holding companies," Journal of Banking & Finance, Elsevier, Elsevier, vol. 30(8), pages 2131-2161, August.
  19. Baele, Lieven & De Jonghe, Olivier & Vander Vennet, Rudi, 2007. "Does the stock market value bank diversification?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 31(7), pages 1999-2023, July.
  20. Andrew P. Meyer & Timothy J. Yeager, 2001. "Are small rural banks vulnerable to local economic downturns?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 25-38.
  21. David Roodman, 2009. "A Note on the Theme of Too Many Instruments," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 135-158, 02.
  22. Mercieca, Steve & Schaeck, Klaus & Wolfe, Simon, 2007. "Small European banks: Benefits from diversification?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 31(7), pages 1975-1998, July.
  23. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, American Economic Association, vol. 76(2), pages 323-29, May.
  24. Evelyn Hayden & Daniel Porath & Natalja Westernhagen, 2007. "Does Diversification Improve the Performance of German Banks? Evidence from Individual Bank Loan Portfolios," Journal of Financial Services Research, Springer, Springer, vol. 32(3), pages 123-140, December.
  25. JoAnne Morris, 2001. "Risk Diversification in the Credit Portfolio," IMF Working Papers 01/200, International Monetary Fund.
  26. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 51(3), pages 393-414, July.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Hoxha, Indrit, 2013. "The market structure of the banking sector and financially dependent manufacturing sectors," International Review of Economics & Finance, Elsevier, Elsevier, vol. 27(C), pages 432-444.
  2. Beck, Thorsten & De Jonghe, Olivier, 2013. "Lending concentration, bank performance and systemic risk : exploring cross-country variation," Policy Research Working Paper Series 6604, The World Bank.
  3. Benjamin M. Tabak & Marcelo Yoshio Takami & J. M. C. Rocha & Daniel O. Cajueiro, 2011. "Directed Clustering Coefficient as a Measure of Systemic Risk in Complex Banking Networks," Working Papers Series, Central Bank of Brazil, Research Department 249, Central Bank of Brazil, Research Department.
  4. Michael Brei & Carlos Winograd, 2012. "Foreign banks, corporate strategy and financial stability: lessons from the river plate," PSE Working Papers halshs-00703738, HAL.
  5. Benjamin M. Tabak & Daniel O. Cajueiro & Dimas M. Fazio, 2010. "Financial Fragility in a General Equilibrium Model: the Brazilian case," Working Papers Series, Central Bank of Brazil, Research Department 229, Central Bank of Brazil, Research Department.
  6. Benjamin Miranda Tabak & Guilherme Maia Rodrigues Gomes & Maurício da Silva Medeiros Júnior, 2012. "The Impact of Market Power at Bank Level in Risk-taking: the Brazilian case," Working Papers Series, Central Bank of Brazil, Research Department 283, Central Bank of Brazil, Research Department.
  7. Tabak, Benjamin M. & Fazio, Dimas M. & Cajueiro, Daniel O., 2013. "Systemically important banks and financial stability: The case of Latin America," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(10), pages 3855-3866.
  8. Mircea Epure & Esteban Lafuente, 2014. "Monitoring Bank Performance in the Presence of Risk," Working Papers 613, Barcelona Graduate School of Economics.
  9. repec:hal:wpaper:halshs-00703738 is not listed on IDEAS
  10. de Haan, Jakob & Poghosyan, Tigran, 2012. "Size and earnings volatility of US bank holding companies," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(11), pages 3008-3016.
  11. Jahn, Nadya & Memmel, Christoph & Pfingsten, Andreas, 2013. "Banks' concentration versus diversification in the loan portfolio: New evidence from Germany," Discussion Papers 53/2013, Deutsche Bundesbank, Research Centre.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:35:y:2011:i:11:p:3065-3076. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.