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Credit Losses in Australasian Banking

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  • Kurt Hess

    () (University of Waikato)

  • Arthur Grimes

    (Motu Economic & Public Policy Research)

  • Mark J. Holmes

    (University of Waikato)

Abstract

We analyse 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 less efficient banks have greater asset quality problems. 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.

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File URL: ftp://mngt.waikato.ac.nz/RePEc/wai/econwp/0810.pdf
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Bibliographic Info

Paper provided by University of Waikato, Department of Economics in its series Working Papers in Economics with number 08/10.

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Length: 23 pages
Date of creation: 18 Jun 2008
Date of revision:
Handle: RePEc:wai:econwp:08/10

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Keywords: banking; credit risk; loan loss provisions; Australia; New Zealand;

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References

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  1. Tommasi, Mariano, 1994. "The Consequences of Price Instability on Search Markets: Toward Understanding the Effects of Inflation," American Economic Review, American Economic Association, vol. 84(5), pages 1385-96, December.
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Cited by:
  1. 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.
  2. Kurt Hess & Arthur Grimes, 2009. "Commercial Bank Loan Loss Recoveries," Working Papers in Economics 09/09, University of Waikato, Department of Economics.
  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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