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Commercial Bank Loan Loss Recoveries

Author

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  • Kurt Hess

    (University of Waikato)

  • Arthur Grimes

    (Motu Economic and Public Policy Research and University of Waikato)

Abstract

We present a new approach to analyse historical recovery rates on distressed bank assets. Our approach uses banks’ reported impaired assets and the corresponding specific provisions. The dynamics and drivers of this credit loss recovery proxy are studied for a comprehensive sample of Australian banks from 1989 to 2005. We find that macroeconomic and bank-specific factors influence banks’ estimates of loan loss recoveries, consistent with banks smoothing their earnings. In contrast with findings based on prices of distressed corporate bonds, banks record lower recoveries in years of strong economic growth.

Suggested Citation

  • Kurt Hess & Arthur Grimes, 2009. "Commercial Bank Loan Loss Recoveries," Working Papers in Economics 09/09, University of Waikato.
    • Handle: RePEc:wai:econwp:09/09
    as

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    File URL: https://repec.its.waikato.ac.nz/wai/econwp/0909.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    banking; credit risk; loan loss recoveries; loss given default; Australia;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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