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Bank Profitability during Recessions

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  • Wilko Bolt
  • Leo de Haan
  • Marco Hoeberichts
  • Maarten van Oordt
  • Job Swank

Abstract

This paper estimates the relation between bank profitability and economic downturns using a theoretical model that takes into account the bank's lending history as well as amortization and losses on outstanding loans. We focus on total bank profits and its components: net interest income, other income, and net provisioning plus other costs. Using both aggregate and individual bank panel datasets, our results confirm that pro-cyclicality of bank profits is stronger for deep recessions than during mild ones. Loan-losses are found to be the main driver of this nonlinearity. We find evidence that each percent contraction of real GDP during severe recessions leads to a 0.24 percent decrease in return on bank assets.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 251.

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Date of creation: Jul 2010
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Handle: RePEc:dnb:dnbwpp:251

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Keywords: Bank profitability; Business cycle;

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References

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Citations

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Cited by:
  1. Cristian Dragos & Simona Laura Dragos, 2012. "Econometric Estimations of the Services and Financial Sector Impact on Economic Growth Variations in Times of Crisis," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 14(Special N), pages 621-634, November.
  2. Sergio SANFILIPPO AZOFRA & Maria CANTERO SAIZ & Begona TORRE OLMO & Carlos LOPEZ GUTIERREZ, 2013. "Financial Crises, Concentration and Efficiency: Effects on Performance and Risk of Banks," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(6), pages 537-558, December.
  3. Alin Marius ANDRIES & Vasile COCRIS & Silviu Gabriel URSU, 2012. "Determinants Of Bank Performance In Cee Countries," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 10, pages 165-177, December.
  4. Adela Socol & Adina Elena Danuletiu, 2013. "Analysis Of The Romanian Banks‘ Performance Through Roa, Roe And Non-Performing Loans Models," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 2(15), pages 24.
  5. M. Kabir Hassan & William J. Hippler III, 2013. "The Pronounced Impact of Macroeconomic Stress on the Financial Sector: Implications for Real Sector Growth," NFI Working Papers 2013-WP-01, Indiana State University, Scott College of Business, Networks Financial Institute.
  6. Gerbert Hebbink & Mark Kruidhof & Jan Willem Slingenberg, 2014. "Bank lending and capital," DNB Occasional Studies 1203, Netherlands Central Bank, Research Department.
  7. Imola Driga, 2013. "Financial Crisis And Bank Profitability – The Case Of Romania," Annals of University of Craiova - Economic Sciences Series, University of Craiova, Faculty of Economics and Business Administration, vol. 1(41), pages 34-45.

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