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Credit Losses in Australasian Banking

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Author Info
Kurt Hess () (University of Waikato)
Arthur Grimes (Motu Economic & Public Policy Research)
Mark J. Holmes (University of Waikato)

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

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Find related papers by JEL classification:
G20 - Financial Economics - - Financial Institutions and Services - - - General
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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  8. Danielsson, Jon, 2002. "The emperor has no clothes: Limits to risk modelling," Journal of Banking & Finance, Elsevier, vol. 26(7), pages 1273-1296, July. [Downloadable!] (restricted)
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  9. Fudenberg, Drew & Tirole, Jean, 1995. "A Theory of Income and Dividend Smoothing Based on Incumbency Rents," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 75-93, February. [Downloadable!] (restricted)
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  10. 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. [Downloadable!] (restricted)
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