Banks' concentration versus diversification in the loan portfolio: New evidence from Germany
AbstractUsing a unique data set on German banks' sector specific loan exposures to the real economy and the corresponding write-offs and write-downs, we examine the impact of loan portfolio sector concentration on credit risk. By controlling for common risk factors, we separate the bank-specific selection and monitoring abilities from the composition of the loan portfolio. In our empirical study for the period 2003-2011, we find that (a) banks which are specialized in certain industries have, on average, lower loan losses, (b) the loss rate of a given industry in a bank's loan portfolio is lower if the bank has major exposures to this industry, and (c) the standard deviation of the loan losses is lower in the case of more focused banks. --
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Bibliographic InfoPaper provided by Deutsche Bundesbank, Research Centre in its series Discussion Papers with number 53/2013.
Date of creation: 2013
Date of revision:
loan portfolio; credit risk; loan losses; concentration;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
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